Introduction
When a founder, senior employee, or technical specialist becomes unavailable, the impact on revenue and cashflow can be immediate and severe.
Key Person Insurance helps your business stay stable by funding temporary replacements, protecting profits, and reassuring lenders, investors, and stakeholders. At its core, it’s about buying time and liquidity when your business needs it most.
What is Key Person Insurance?
Key Person Insurance is a business-owned life, critical-illness or loss of profits policy that protects the company against the financial loss caused by the death, serious illness or incapacity of someone vital to its success.
If the worst happens, the payout goes directly to the business, helping to:
Maintain cashflow
Fund recruitment and training
Support loan obligations
Provide breathing space while operations reset.
This is continuity planning in its most practical form, keeping the business trading when a valuable human asset is suddenly taken out of action.
Who needs Key Person Insurance?
Key Person Insurance is relevant wherever success depends on a small number of critical individuals, including:
Founders and co-founders whose vision, credibility, or decision-making underpins the business
Senior revenue generators, such as rainmakers or sales leaders
Technical specialists whose knowledge or licences can’t be replaced quickly
Relationship holders whose client or supplier connections drive a disproportionate share of turnover
Directors tied to lending, where banks or investors rely on their continued involvement
If the absence of one individual would materially damage profits, disrupt servicing of debt, or threaten survival, the business has a transferable risk exposure that belongs in its continuity plan.
How Key Person Insurance works
The business applies for and owns the policy
The key person is the life insured
On a valid claim, the insurer pays the business not the individual.
This gives the company immediate liquidity to manage disruption, stabilise operations, and plan its next steps.
Types of Key Person Cover
Different risks call for different structures. Common options include:
Life only
Pays a lump sum to the business if the key person dies or is diagnosed with a terminal illness.
This is the most cost-effective way to protect against catastrophic loss.
Life with critical illness
Extends protection to serious, specified illnesses.
Useful where diagnosis alone could interrupt revenue, delay projects, or breach lending agreements.
Temporary inability to work
Pays a monthly amount to the business if the key person can't work due to accident or illness. Typically covers lost profits or a reduction in operating revenue.
How much cover do you need?
Insurers may start with turnover multiples, but effective planning goes deeper. We help businesses take a quantitative, risk-based approach, considering:
Turnover and profit contribution
Ask: What part of the business walks out the door with this person?
Estimate the proportion of turnover tied directly to their role, client relationships, sales activity, or delivery capability. Model the impact on gross profit and overhead absorption if that income stops.
Policy terms often reflect the dependency period—commonly three to five years.
Debt and loan protection
Identify borrowing that relies on the individual’s presence, including bank facilities or director loans.
Align sums insured with outstanding balances and the realistic time needed to refinance, restructure, or repay.
Recruitment, training and ramp-up costs
Factor in recruitment fees, interim cover, onboarding costs, and the time it takes a replacement to reach full productivity.
For senior or technical hires, six to twelve months’ ramp-up is often realistic.
Operational resilience extras
Beyond pure numbers, consider:
Contractual penalties
Client retention and relationship management
Marketing or business-development spend to stabilise momentum
Many businesses segment cover, allocating portions for profit protection, recruitment, and debt support rather than relying on a single blunt figure.
Policy options and structure
The way a policy is structured determines how effective it is in practice:
Level vs decreasing term
Level term keeps benefits constant - ideal for profit and continuity protection
Decreasing term mirrors reducing liabilities like loans
Premium style
Fixed premiums provide certainty and long-term budgeting clarity
Reviewable premiums start lower but rise over time and introduce cost uncertainty
In most continuity-focused cases, fixed premiums are preferred, though reviewable structures can suit specific, shorter-term needs.
Protect your business’s future today.
Key Person risk is one of the most common and most underestimated threats to business survival.
Book a free exploratory meeting to see how ContinuityPoint can help you design and put the right protections in place, tailored to your business and its dependencies.
Types of Key Person Cover
Different risks call for different structures. Common options include:
Life only
Pays a lump sum to the business if the key person dies or is diagnosed with a terminal illness.
This is the most cost-effective way to protect against catastrophic loss.
Life with critical illness
Extends protection to serious, specified illnesses.
Useful where diagnosis alone could interrupt revenue, delay projects, or breach lending agreements.
Temporary inability to work
Pays a monthly amount to the business if the key person can't work due to accident or illness. Typically covers lost profits or a reduction in operating revenue.
How much cover do you need?
Insurers may start with turnover multiples, but effective planning goes deeper. We help businesses take a quantitative, risk-based approach, considering:
Turnover and profit contribution
Ask: What part of the business walks out the door with this person?
Estimate the proportion of turnover tied directly to their role, client relationships, sales activity, or delivery capability. Model the impact on gross profit and overhead absorption if that income stops.
Policy terms often reflect the dependency period—commonly three to five years.
Debt and loan protection
Identify borrowing that relies on the individual’s presence, including bank facilities or director loans.
Align sums insured with outstanding balances and the realistic time needed to refinance, restructure, or repay.
Recruitment, training and ramp-up costs
Factor in recruitment fees, interim cover, onboarding costs, and the time it takes a replacement to reach full productivity.
For senior or technical hires, six to twelve months’ ramp-up is often realistic.
Operational resilience extras
Beyond pure numbers, consider:
Contractual penalties
Client retention and relationship management
Marketing or business-development spend to stabilise momentum
Many businesses segment cover, allocating portions for profit protection, recruitment, and debt support rather than relying on a single blunt figure.
Policy options and structure
The way a policy is structured determines how effective it is in practice:
Level vs decreasing term
Level term keeps benefits constant - ideal for profit and continuity protection
Decreasing term mirrors reducing liabilities like loans
Premium style
Fixed premiums provide certainty and long-term budgeting clarity
Reviewable premiums start lower but rise over time and introduce cost uncertainty
In most continuity-focused cases, fixed premiums are preferred, though reviewable structures can suit specific, shorter-term needs.
Protect your business’s future today.
Key Person risk is one of the most commo and most underestimated threats to business survival.
Book a free exploratory meeting to see how ContinuityPoint can help you design and put the right protections in place, tailored to your business and its dependencies.
