It is not a topic most boards are eager to discuss.
Growth, hiring, expansion, new contracts. These are the conversations that dominate leadership meetings. But there is one question that rarely makes the agenda and arguably should.
What is the plan if a key employee passes away?
For many limited companies, the honest answer is that there is no formal one.
Every business has people it depends on
In SMEs, responsibility is rarely spread evenly.
It might be the founder or CEOwho shapes strategy and secures major revenue.
An IT managerwho built and maintains the systems the company relies on.
A compliance specialist who ensures regulatory standards are met.
A sales leader who manages the top five client accounts.
An operations manager who keeps delivery, staff and suppliers aligned.
These individuals are often the glue holding the business together. When they perform well, everything runs smoothly. Because of that, their importance can become normalised.
Until you consider what would happen if they were suddenly not there.
The commercial impact most directors underestimate
If a key employee passed away unexpectedly, the consequences would extend far beyond the personal tragedy.
Would revenue fall because client relationships were personal?
Would senior leaders need to step back into operational management, taking time away from strategic growth?
Would morale drop as remaining staff feel overstretched?
Would productivity dip while roles are reallocated or recruitment begins?
In many SMEs, the answer to several of these questions is yes.
Recruitment alone can take months. Replacing specialist knowledge or long standing relationships takes even longer. During that period, the business is vulnerable.
What makes this risk more challenging is that it is rarely modelled in financial forecasts. Yet the financial impact can be immediate.
Planning for the worst does not mean expecting it
Some directors avoid this conversation because it feels overly cautious or negative.
In reality, having a plan is a mark of startegic leadership.
Businesses routinely insure property, vehicles and equipment. They protect against cyber risk and data breaches. Planning for the loss of a key employee is simply another aspect of risk management.
The difference is that people drive value more directly than any asset on a balance sheet.
A scenario that brings it into focus
Imagine a professional services firm turning over £1.5 million per year. The sales director personally manages 60 percent of the firm’s revenue and maintains relationships with its largest clients.
If that sales director were to pass away suddenly, the immediate effect would likely be uncertainty among clients. Some may delay renewals. Others might explore alternatives. The managing director would have to step into client meetings while also overseeing recruitment.
Revenue could decline within a quarter. Cashflow would tighten. Recruitment fees and a higher salary package to attract a replacement would increase costs at precisely the wrong time.
Now consider the same firm with contingency planning in place.
A key person insurance policy pays a lump sum to the business. That capital allows the company to stabilise cashflow, hire an experienced interim consultant, reassure clients and fund a thorough recruitment process without panic.
The disruption is still real. But the business retains control. Decisions are made from a position of stability rather than urgency.
What a practical plan looks like
A robust plan does not need to be complex. It begins with clarity.
Identify which individuals have the greatest impact on revenue, operations or compliance.
Assess how long it would take to replace them effectively.
Estimate the potential financial shortfall during that period.
Review whether the business could comfortably absorb that shock.
For many SMEs, this exercise reveals a gap between exposure and preparation.
Key person insurance is a way businesses address that gap. It provides financial protection to the company if a key individual dies or suffers a critical illness. The aim is not to replace the person, but to protect the enterprise while it adapts.
A leadership question worth asking
Directors are responsible for more than growth. They are responsible for resilience.
If a key employee passed away tomorrow, would your business be forced into reactive decisions? Or would you have the financial space to respond strategically?
Planning for the worst does not invite it. It simply ensures that if the unexpected happens, the business can continue.
For decision makers focused on long term value and stability, that conversation is not optional. It is part of building a business designed to last.
