Building a legacy: Is your family business protected for the next generation?

By Ryno de Kock, Head of Distribution at PSG Insure

Heritage Month provides an opportunity to reflect not only on our cultural heritage, but also on the legacies we hope to leave behind for future generations. For many South African entrepreneurs, that legacy takes the form of a family business built over decades through hard work, sacrifice and careful stewardship.

However, preserving a family business across generations is often more challenging than many business owners realise. According to the Family Business Institute, only around 30% of family businesses survive into the second generation, while approximately 12% make it to the third.

Many factors contribute to this decline, but one major and often overlooked risk is the impact that a single uninsured or underinsured event can have on a business, its employees and the wealth it was intended to create for future generations.

Protecting what has been built

When business owners think about succession planning, the focus often falls on wills, trusts, ownership structures and identifying future leaders. These are undoubtedly important considerations. However, continuity planning also requires a practical assessment of the risks that could prevent the business from reaching the next generation in the first place.

A fire that destroys business premises, a major theft, a severe storm or an extended interruption to operations can place enormous strain on any business. For well-established family-owned businesses, the impact can extend beyond the balance sheet, disrupting a key source of employment within an extended community.

Even when there is some level of insurance in place, the consequences of underinsurance can be significant. In this case, second-generation business owners may believe they have adequate protection, only to discover after a loss that buildings, equipment, stock or other assets were insured for severely outdated values.

Consider, for example, a second-generation manufacturing business that has spent 30 years building a loyal customer base and employing dozens of people. A fire destroys the production facility, and while the business is insured, the sums insured have not been reviewed for several years. The resulting payout is insufficient to fully replace machinery and cover the costs associated with a prolonged shutdown. What took decades to build can quickly come under threat.

Business interruption cover is another area that warrants careful consideration. Many businesses focus on replacing damaged property after a loss but overlook the financial impact of being unable to operate for weeks or months while repairs are completed. Even if buildings and equipment can be replaced, lost income and ongoing expenses can pose a significant threat to the long-term sustainability of the business.

When business stops, more than just a legacy is at risk

Importantly, protecting a business legacy is not only about securing physical assets. It is also about safeguarding the livelihoods that depend on the business and ensuring that future generations inherit opportunities rather than financial burdens.

This is where regular reviews and professional advice can make a meaningful difference. As businesses evolve, so do their risk exposures. New equipment is purchased, additional premises are acquired, turnover changes and operating models shift. Without periodic reviews, insurance arrangements may no longer accurately reflect the realities of the business.

Working alongside a trusted adviser can help business owners identify gaps, reassess sums insured and ensure that cover remains aligned with the evolving needs of the business. Just as importantly, an adviser can help business owners understand how different forms of cover work together to support long-term continuity and succession objectives.

Building a successful family business often takes a lifetime. Protecting that legacy requires the same long-term mindset. By viewing insurance as a strategic risk management tool rather than simply a financial product, business owners can help ensure that the businesses, assets and wealth they have worked so hard to build remain protected for generations to come.