As a business owner, you may have found yourself occasionally lying awake at night, worrying about all that could go wrong – especially events outside of your control, such as fires or floods.
Most likely, insurance will already play a key role in protecting your business. But while you may focus on protecting your building, equipment, and technology, there’s one area that is often overlooked: your people.
In many cases, your revenue can be dependent on a few critical members of your team, especially if you run a Small and Medium-Sized Enterprise (SME). These are companies which have fewer than 250 employees, and a turnover lower than £44 million or a balance sheet total below £38 million.
If one of these team members becomes suddenly unable to work, this can really impact your cash flow. In the worst-case scenario, losing a key person could even limit your ability to make essential payments, such as salaries and supplier invoices.
Read on to find out how key person insurance could help manage these risks and keep your business running in the event of the unexpected.
The domino effect of losing team members can be devastating, but key person insurance could help you keep operating
Research from Legal & General found that 59% of businesses believed they would have to cease trading in the event of the death or critical illness of a key individual.
That’s a rather sobering statistic.
An unexpected death or sudden onset of illness is, of course, devastating on a personal level for those close to the person.
On a professional level, it could mean you’re unable to continue operating at the same level, or even at all, with knock-on effects including financial strain, possible job losses, and even the closure of the business.
This is why taking out key person insurance is a forward-thinking business decision. As with most types of insurance, you hope never to need it. But having a contingency plan in place can offer you some reassurance that, in the event of an emergency, you have cover to mitigate potential losses and help you keep trading.
Defining your key team members can help you find the right type of cover
The definition of a key person will vary from business to business. But in general terms, it could be:
- Any team member whose death or disability would have a serious impact on the company’s revenue, sales, or profits
- One person or several key individuals
- Anyone whose absence could impact your ability to repay loans or meet financial commitments
- The majority shareholder and company figurehead.
Key person insurance effectively covers your business for the financial losses you’d incur in the absence of the individual or individuals concerned.
You can opt for just life insurance, or add critical illness cover, and the policy is paid for and owned by you as the business owner.
This means that in the event of a payout, it will normally come directly to the business.
Terms and conditions will vary between providers, but you can usually claim in the event of:
- Death of the person covered
- Terminal illness
- Specific critical illness, such as cancer, if this is included in your cover.
Any payouts are designed to ensure business operation continuity, so they can be used to cover:
- Loss of profits
- Recruiting and training a replacement
- Loss of personal or business contacts
- Maintaining investor confidence
- Repaying debts or outstanding loans.
The level of insurance you need will depend on the potential impact of losing a key person, particularly in terms of how this would affect your revenue and profits.
You also need to consider potential recruitment and training costs if you need to replace them, particularly if it’s a niche role that might need specialist recruitment support or involve relocation costs.
Further advantages include possibly reducing Corporation Tax and reassuring your shareholders
If your key person cover is designed to protect your trading profits, then your premiums could be considered an allowable business expense, potentially lowering your Corporation Tax bill.
However, if you take out the policy for “capital purposes”, this is not an allowable expense. These purposes include:
- Buying out shareholders
- Funding ownership changes
- Repaying share capital.
As well as giving you reassurance as a business owner that you have a continuity plan, key person insurance can also serve as an indicator of smart financial planning.
Having this cover in place can instil confidence in shareholders, investors, and other stakeholders that your business will remain viable even if the key person is unable to be there.
Get in touch
Finding the right cover can be tricky. We’re here to help you explore your options – no sales tactics, just an honest conversation about your needs.
If there’s anything you’d like to know about how key person insurance could help to protect your business operations, please get in touch and we’ll be happy to help.
Please email us at info@servoprivatewealth.com or call 01444 715200 to find out more.
Please note
This article is for general information only and does not constitute advice. The information is aimed at individuals only.
All information is correct at the time of writing and is subject to change in the future.
Note that life insurance and financial protection plans typically have no cash in value at any time, and cover will cease at the end of the term. If premiums stop, then cover will lapse.
Cover is subject to terms and conditions and may have exclusions. Definitions of illnesses vary from product provider and will be explained within the policy documentation.
Approved by Best Practice IFA Group Limited on 16/02/2026.