Picture of Debbie Hancock

Debbie Hancock

Owner of Southbourne Accountancy & Business Services


Key Person Insurance is a form of commercial insurance which protects businesses against the financial loss it would suffer if a person considered a vital cog in their business died or was diagnosed with a critical illness.  


It is to ensure business continuity and succession planning, something overlooked by many business owners, particularly when the company is small. It pays out a lump sum upon the staff member’s death or in the event of a terminal diagnosis (if critical illness is included). 

It makes sure that if you lose a key figure in your business, that it has the smallest possible impact on the day to day running and success of the company.  



Key people are individuals whose skills, knowledge, experience or leadership are vital to a business’ continued financial success; they have a direct impact on the business’s profits. Often there is not just one key person but several. The important thing is to consider whether the business could continue if that person died and how much it would cost to replace them. 

Examples of a key person include, but are not limited to: 

  • Business Owner 

  • Sales Director 

  • IT Specialist 

  • Managing Director 

  • Specialise skill or expertise 

  • Head of Product Development 



Key Person Cover can help protect against the following business risks: 


Profits protected 

While your employee is receiving treatment for their illness or you are waiting to complete the recruitment process to replace a member of staff who has passed away, key person insurance will ensure you do not feel the effects of a potential drop-in profits and sales. 


Recruitment Cost covered 

Recruitment can be a time-consuming and costly exercise, there are costs associated with finding the right persona and with training a new employee. Key Person Insurance covers these costs in the event of your business losing a key member of staff to sickness or death. No business wants to be spending in excess to replace their staff as this could have a negative impact on their bottom line.  

A report by Oxford University, concluded that the cost of replacing an ordinary employee is more than £30,000. This amount covers the recruitment and training expenses, lost time, and output while searching for a replacement.  


Reduce Stress 

Losing a key person can be a distressing time, especially when illness and death is the cause. The absence of this key person can put a lot of strain on the remaining team, as they attempt to pick up the extra workload. By making sure you have key person insurance for your company means that in a worst-case scenario your staff will be in a better position to cope. 



If you’re a small business owner and don’t yet have any kind of business protection insurance in place, talking to an independent financial advisor might help you understand where your vulnerabilities are, and how best to protect yourself, your profits and the members of your team. 


The loss of a key person to your business can have a serious impact on your business’s finances as sales and profits begin to decrease and the workload increases for your remaining staff. 


The Key Person Insurance is designed to pay out a large lump sum of to help your business recover. The money can be used to help replace profit loss or finding and hiring a replacement. With many small and medium-sized companies dependent on a few specialist individuals, Key Person Insurance is designed to help protect your business. 

Many key person policies also combine life insurance with critical illness covertherefore, the business would be covered if the insured person was unable to work for a prolonged period due to illness or injury, subject to the terms and conditions of the policy purchased. 



When deciding how much you need to insure them for, consider the annual turnover of the business and how far that person’s loss would affect it. 


Also, think about the scenario that might follow. Would you wind the company down, or carry on without them? If the latter, then how long would it take the business to recover? 


Finally, consider the premiums you’ll need to pay and how much you can afford. As a general rule, though, insure the key person for a slightly higher amount than you think they’re worth to the business, rather than the other way around. 

It’s also important to remember that this is not the same as a personal life insurance policy and is not designed to benefit the person’s family or personal dependents. 


When the business is trying to recover from the loss of a director, owner, or key employee, key person insurance is essential for keeping the company afloat in difficult times. 




Large businesses will usually have the cash balances and contingency plans to deal with the departure of even their most influential leaders. Unfortunately, small businesses do not usually have this and therefore key person insurance is more important. It’s mostly these businesses that could not survive the death of a founder whose vision and determination have carried the business through both profitable periods and lean years. Consequently, a look at key person life insurance makes sense for any company in the small business segment. 


Thinking of the worst circumstances in a family or small business can be unsettling, but failing to prepare for an unexpected death can be devastating. While key person life insurance benefits could never replace the lifeblood of your business, those funds could help keep a business they worked hard for, to rebuild and flourish 



Have you insured key persons in your business? If not, what stops you from securing this vital cover? Southbourne Accountancy works with Independent Financial Advisors who will happily discuss your businesses circumstances and how this type of insurance could help. Please do get in contact with me if you would like to discuss further.  

1. Book a call with me: https://southbourneaccountancy.co.uk/contact-us/

2. Download our free guide on “7 mistakes to fix, to stop your fitness business running out of cash” https://southbourneaccountancy.co.uk/fitness-ebook/

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