Could your business survive losing a key employee? The importance of key person protection insurance
Could your business survive losing a key employee? The importance of key person protection insurance
When it comes to business continuity, few leaders consider the financial shock of losing a crucial team member. Key Person Protection Insurance safeguards your company if a key employee is unable to work due to illness, injury, or death ensuring the business stays stable when it matters most.
If your business depends heavily on one or more individuals, whether that be top sales people, technical leader, founders, or client-facing executives, their absence can cause serious disruption, reputational damage and financial strain.
This is where Key Person Protection Insurance (sometimes known as “keyman insurance”) comes in. In this blog, we will explain:
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What key person protection involves
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Why businesses need it
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How it works (mechanics, cost drivers, limitations)
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How Black Mountain Employee Benefits helps
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Frequently asked questions
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How to get started
By the end, you’ll understand whether this cover is right for your business, and how to move forward with confidence.
What is Key Person Protection Insurance?
Key Person Protection Insurance is a life (and sometimes critical illness) insurance policy that a business takes out on an individual whose skills, relationships, or leadership are vital to the business operations and success.
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It is owned and paid for by the employer, not the key person themselves.
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If a covered event occurs (death, terminal illness, or a defined critical illness), the payout goes to the business.
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The business can then use those funds to stabilise operations, hire a replacement, service debt, or manage transition.
Many major UK insurers offer this type of cover. For example, Legal & General offers it as a life policy (with optional critical illness) that pays out to the employer in defined circumstances. Legal & General
Zurich describes it as designed to protect a company should a key individual die or become critically ill. zurich.co.uk
Broadly speaking, key person protection insurance helps bridge the financial gap when a business loses someone crucial, helping ensure continuity.
Why It Matters: The Business Risks Without It
Here’s what many companies underestimate:
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Revenue & client loss: If the key person had unique client relationships, new deals or contracts may collapse.
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Operational disruption: Workflow bottlenecks, decision-making delays, or project delays.
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Staff overload: Remaining team members may suffer burnout or inefficiency as they try to fill the void.
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Cashflow strain: Without extra buffer, you may struggle with payroll, debts, or loan covenants.
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Investor or lender concern: Financial backers may lose confidence if they perceive a stability risk.
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Recruitment & training costs: Hiring, onboarding, and ramping up a replacement can be expensive—and time-consuming.
In short: a single loss can have cascading effects.
This is especially true in small to medium enterprises where the “key person” is often wearing multiple hats.
How Key Person Protection Insurance Works: Mechanics & Factors
Below is a simplified breakdown of how a typical key person protection insurance policy operates:
| Feature | Description |
|---|---|
| Insured events | Death, terminal illness, (optionally) critical illness or disability |
| Policy owner / beneficiary | The business (employer) |
| Payout | Lump sum (or sometimes staged payments) to the business |
| Premium basis | Depends on the insured person’s age, health, role significance, policy term, sum insured, etc. |
| Evidence of “key-ness” | Insurers often require proof that the business would suffer financial loss were the person absent |
| Tax treatment | Usually the premiums are a business expense (depending on jurisdiction); payout is to the company |
Some firms also offer Key Person Income Protection—which pays out a monthly benefit if the key person becomes incapacitated and unable to work (due to illness or injury). Legal & General
Importantly, you must work with an insurer who understands the dynamics of your business, so the cover aligns with your actual risk.
How Black Mountain Employee Benefits Can Help
At Black Mountain Employee Benefits, we specialise in helping businesses identify, design, and manage Key Person Protection plans that are tailored, efficient, and aligned with your risk profile.
Here’s how we assist:
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Role identification & risk assessment
We help you map out which roles truly qualify as “key”—those whose absence would materially impact your business. -
Custom plan design & underwriting support
We liaise with insurers to structure cover (term, benefits, riders) that respond to your circumstances and budget. -
Implementation & administrative setup
From applications to health checks to policy binding, we manage the process to reduce friction for you. -
Ongoing review & optimisation
As your business evolves, we review whether your key person cover still matches your needs (adjusting sums insured, adding or removing individuals). -
Advice & advocacy
We translate insurance technicalities into practical business decisions, ensuring you understand what you’re paying for, what’s excluded, and how claims would work.
In short: we ensure your policy is not just “insurance for insurance’s sake”, but a strategic safeguard that aligns with your objectives.
Frequently Asked Questions (FAQ)
Q. Can you insure more than one key person?
Yes, many businesses insure multiple individuals if more than one role is critical.
Q. Is critical illness cover always included?
Not by default. It is often optional or available as an add-on to the life component. (Some providers do include it.)
Q. Who pays the premium, and who is the beneficiary?
The business pays the premium and is the beneficiary.
Q. Will the insurer accept the application?
Insurers look at medical underwriting, age, role significance, and whether you can demonstrate quantifiable business loss.
Q. Is the payout taxable?
Tax treatment depends on the jurisdiction; typically the payout goes to the business and is used for operations, not treated as personal income. You should check with your accountant or tax advisor.
Q. How much cover do I need?
It depends on your expected loss: lost profits, recruitment cost, training, or continuity buffer. We help you model that.
Next Steps & How to Contact Us
If you recognise the risk but don’t yet have key person protection in place or want to review your existing cover, we’d be delighted to help.
Contact Black Mountain Employee Benefits today for a no-obligation consultation and risk audit
📧 Email: enquiries@blackmountainhr.com
📞 Phone: +44(0)1432 272787
🖥️ Or visit www.blackmountainhr.com/contact
Protect your business, your people, and your future. Don’t wait until it’s too late.