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Is your “key person” really who you think it is?

Who is the life and soul of your business? If you can name them, then you probably need key person insurance.

The business vulnerabilities exposed in the last two years have brought a new focus on identifying risk – and many UK SMEs are taking a long, hard look at their business to understand the threats to their success.

Alongside operational risk, “people risk” has taken on a new significance, with research showing that 59% of UK SMEs would cease trading within 12 months of losing a key person[1]. It’s easy to assume that “key people” are business owners and managing directors, but it’s important to think laterally.
The definition of a key person can be “any individual who significantly contributes to a business’s financial success due to their skills, knowledge, experience or leadership”[2].

“59% of UK SMEs would cease trading within 12 months of losing a key person”
Key person insurance | Business Protection | Advisers - AIG Life

Let’s consider a technology, life science or energy related business today. Arguably its key people are the research and development staff on whose expertise the business is built, not necessarily the owners or directors (important as they are, particularly in securing investment).

Alongside the “flagship” roles, key people may be found key people may be found at any level or department in a business:

  • Product design (including complex coding)
  • Creative/intellectual property development
  • Funder/investor relations
  • Sales and business development
  • Key relationship holders

Despite most businesses insuring operational risk, many still overlook building financial resilience against the loss of a key employee – but this could mean:

• Customers losing confidence in the business
• Banks calling in loans
• Suppliers asking for payment up front

Many businesses consider their staff their most valuable asset, so if you’d be vulnerable without certain individuals, do open a conversation with our business protection team about key person insurance.

What is key person insurance?

Key person insurance is designed to protect businesses from the financial impact of the death or critical illness of a key person. It can provide the funds to enable the business to continue trading, to maintain profit, fund a replacement, pay off a bank loan or repay directors’
loan accounts.





[1] Key person insurance | Business Protection | Advisers – AIG Life
[2] State of the Nation, SME Report 2021