In every business, specific individuals are critical to success. 94% of businesses recognise that their reliance on these key people’s skills, decisions and relationships drives their businesses forward, according to Legal & General. In the early years, this responsibility usually sits with the owner or managing director but includes more key people as the business expands and responsibilities are delegated.
It’s essential to recognise that if a key person were to pass away, it could plunge a business into chaos, and as a business grows and adds more key people, the risk increases. A way to reduce the impact of your business losing a critical staff member is key person insurance.
Key people in the early stages
In the early stages of a business, the founder or managing director is almost always the key person. They wear many hats and are responsible for strategy, sales, finances, operations, and often other areas too. Clients trust them, suppliers rely on them, and employees look to them for direction.
During these first five years, the business is highly dependent on the founder because:
- Most decisions go through one person
- Customer relationships are personal
- Systems and processes are still developing
- Cash flow depends on the founder’s activity
- The brand is closely tied to the founder’s reputation
If the founder were to suddenly pass away, many young businesses would struggle to continue. This is why recognising the founder as the key person early on is so important.
Key people in the growth stages: delegation and shared responsibility
As the business stabilises and grows, founders begin to delegate. Responsibilities that once sat with one person are shared across a small team. Key senior and skilled roles are created by this business growth. This is a positive and necessary step in the development of any successful company.
Common roles that emerge include:
- A senior sales or business development lead
- A finance manager or finance director
- An operations manager
- A technical or product specialist
- A senior client relationship manager
At this stage, the founder is still a key person, but they are no longer the only one.
“Key person insurance safeguards a business against the financial shock of losing someone whose knowledge, skills or leadership drive daily operations.”
Callum Andersson
Protection Specialist at IGotCover
What key person insurance does
Key person insurance is a policy taken out by the business to protect against the financial impact of losing a crucial employee or owner. If the insured person dies or is diagnosed with a critical illness, the business receives a lump sum payout.
The funds can be used to:
- Cover temporary loss of revenue
- Recruit or train a replacement
- Keep clients confident during transition periods
- Maintain cash flow
- Reduce financial pressure during uncertain times
It gives the business time to recover and adapt without falling into crisis.
Why high-performing businesses always have key person cover
They understand risk
Successful companies know that strong systems and smart procedures are important, but people remain the driving force behind results. High performing businesses do not assume they are immune to disruption. They plan for it.
They protect client relationships
Clients often rely on trusted contacts. Losing the person they communicate with can lead to hesitation or loss of confidence. Key person insurance provides funds to stabilise the relationship and maintain service standards while the business adjusts.
They strengthen investor and lender trust
Banks and investors want reassurance that the business can withstand unexpected challenges. Having key person insurance demonstrates responsible planning and reduces perceived risk.
They safeguard long term strategy
A sudden leadership or skill gap can delay projects, slow growth, or derail strategic plans. With key person protection in place, the business has financial breathing space to keep moving forward.
They value continuity
High-performing businesses know that consistency builds reputation. When a key person is lost, continuity becomes difficult to maintain without financial support. Key person insurance ensures that the business can continue to operate while new leadership or expertise is secured.
Real-world example
A successful small retailer relies on one buyer who negotiates every supplier contract. When that buyer passes away suddenly, the business faces rising costs and disrupted stock levels. With key person insurance, the company receives funds to bring in a consultant, strengthen contracts, and maintain profitability. Without it, the chain could face serious instability.
- 6 in 10 businesses would cease trading within 12 months of losing a key person according to Legal & General 2021
How key person insurance works
- The business identifies key individuals
- A policy is taken out in the company’s name
- The business pays the premiums
- If the insured person passes away suddenly, the business receives a payout
- The payout is used to support operations, recruitment, or cash flow
It is simple to set up and provides significant protection against a risk most businesses underestimate.
Conclusion
94% of businesses rely heavily on one person. The truth is that talent, knowledge, and leadership cannot be replaced overnight. Key person insurance provides the financial support needed to protect the business, maintain stability, and buy time when it matters most.
High-performing businesses understand that planning for the unexpected is a sign of strength, not pessimism. If your business relies on one or two key individuals, now is the time to explore key person insurance by speaking to an IGotCover specialist and securing the future of your company.
