News & Articles

Business protection: Managing the risk of losing a key person


Ask any employer what they value most within their business and one response is guaranteed to crop up again and again: their people.

And amid the current battle for talent, the value that employees – and particularly good employees – can bring to a business has only been amplified.

For example, data from the Office for National Statistics underlines the difficult dynamic in today’s recruitment market, where vacancy postings are at sustained highs, unemployment rates remain low, and employment rates are pushing new records. On top of this, there is a continued flow of experienced workers leaving the labour market, all of which translates into fierce competition for high-quality candidates.

For those employers who have found good people, it’s understandable that they are also prioritising keeping hold of them. Competitive pay and benefits packages form part of the various measures that companies are putting in place to mitigate against the risk of losing influential employees.

But even with a successful retention strategy in place, there are some personnel-related risks that can’t be mitigated against. Poor health, serious illness or even the tragedy of a chance accident, for example, are all sad realities from which none of us are immune.

Aside from the obvious human impact, it is also true that such devastating situations can have very real consequences for a business if they affect a member of staff who is pivotal to a company’s success. And while companies can do nothing to protect individual members of staff against such risks or to limit the emotional impact caused by the loss of a team member, it is possible to limit the resulting financial impact through Key Person Protection.

What is Key Person Protection?

Key Person Protection or Key Person Insurance is a form of life assurance policy that typically pays a lump sum in the event of a key person within the business dying or suffering from a terminal illness. It is often also possible to augment policies with cover for disability or critical illness.

The level of cover will relate to the level of financial impact caused by the loss of the key person in question. This can be calculated in a number of ways, based on either their salary or the impact that their loss would have on profits.

Who is a key person?

A key person will typically sit at the upper levels of an organisation chart, although the term is not defined by seniority alone as the value of a key person to the business can be measured in a variety of ways. For some, it will be based on their deep knowledge of technical or operational matters; for others, it will be linked to the personal relationships they have with the company’s client base.

What are the implications of losing a key person?

Whether directly or indirectly, the loss of a key person, such as an owner or individual responsible for a significant amount of a company’s sales, is likely to trigger financial problems and could possibly threaten the future viability of a business. Naturally, this threat is felt most keenly by smaller firms, where each individual makes up a greater proportion of the whole and people in key roles can be highly influential to the overall success of the business. Indeed, research from Legal & General indicates that six in ten UK SMEs would fail in under a year if a key person died or became critically ill.

Quantifying the cost of losing such a key person might not necessarily be as straightforward as calculating the loss of an inanimate asset such as a car, but it is important to understand the level of key person risk. Possible scenarios could include the loss of valuable contracts and the loss of confidence in the company, which can in turn lead to less favourable financial terms among suppliers or loans being called in by financial providers.

How does Key Person Protection help?

The additional injection of funds from a Key Person Protection policy can help support a business at this difficult time. It could be used to cover lost profits and support cashflow. It could be used to underpin the cost of recruitment efforts or a period of restructuring. It could simply protect the company’s leadership from the financial pressures that might otherwise result in compromised decision-making.


As our recent painful experiences of the pandemic taught us, building resilience and safeguarding continuity are important priorities in an uncertain world – and it is certainly sensible to limit exposure to key person dependency as far as possible.

It is arguably not a risk that can be eradicated entirely, however. Every business is likely to have star performers and influential individuals whose unexpected loss would be felt at many levels, and Key Person Protection can help provide financial consolation at times of such pain.


The information contained within this communication does not constitute financial advice and is provided for general information purposes only. No warranty, whether express or implied is given in relation to such information. Vintage Wealth Management or any of its associated representatives shall not be liable for any technical, editorial, typographical or other errors or omissions within the content of this communication.