Key person insurance is a policy that pays your business a lump sum if someone the company depends on – often an owner, director or vital employee – dies or becomes seriously ill. It gives the business breathing space to recover, replace the person and protect profits and relationships while it does.

What is a “key person”?

A key person is anyone whose absence would materially damage the business: a founder who drives sales, a technical lead whose knowledge is hard to replace, or a director whose relationships underpin key contracts. The test is simple – if losing this person would hit revenue, funding or day-to-day operations, they are a key person.

Why you need it

Losing a key person can create several problems at once: lost income while work stalls, the cost of recruiting and training a replacement, nervous lenders or investors, and clients who wonder whether to stay. Key person cover provides funds to steady the business through that period, rather than relying on reserves or emergency borrowing.

How key person insurance works

  • The business usually takes out and pays for the policy on the life of the key individual.
  • The cover amount reflects the financial impact of losing them – often linked to their contribution to profit or the cost of replacement.
  • The payout goes to the business, to use for recruitment, lost profit, or reassuring lenders and clients.

Setting the cover amount

There is no single formula, but common approaches link cover to a multiple of the key person’s contribution to profit or to salary, adjusted for how central they are. Because that impact changes as the business grows, the amount should be reviewed regularly.

Key person cover and other protection

Key person insurance protects against the loss of someone’s contribution. It works alongside shareholder protection, which deals with ownership of shares, and business loan protection, which repays debt – together they cover the main risks a business faces.

Getting advice

Independent, FCA-regulated, no-obligation advice helps identify who your key people really are and set cover at the right level. You can meet our team or read more about Damian Youell.

Speak to an adviser

Send a few details below and we’ll be in touch to talk through protecting your business against the loss of a key person. There’s no obligation, and any advice is independent and FCA-regulated.