Key Person Insurance Explained: Protecting Businesses From Financial Risk
What happens if a key person in your business dies or becomes seriously ill?
Many businesses depend heavily on a small number of individuals whose expertise, relationships or leadership drive the success of the company. If one of these key individuals were to die or suffer a critical illness, the financial impact on the business could be significant.
Key person insurance is designed to help protect businesses against this risk by providing financial support if a key employee or business owner can no longer work.
What you’ll learn
• How key person insurance works
• Which employees are typically considered key individuals
• How businesses structure key person insurance policies
These guides are for informational purposes only. Please obtain professional advice before making any decisions.
What's in the guide?
Who is this for?
Essential for Business Owners with Key Revenue Drivers
- This guide is designed for business owners who have individuals critical to revenue generation and business operations.
- Perfect for entrepreneurs concerned about future cash flow, profit protection, and shareholder protection.
- Whether you're a startup founder dependent on key talent or an established business with revenue-driving partners, understanding how to structure and calculate key person insurance protects your business investment and ensures continuity if the worst happens.
Related reading
Business protection planning often forms part of a broader financial and wealth planning strategy.
Life insurance is also widely used as part of long-term financial protection planning.
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Some protection strategies are used in inheritance tax planning for families and business owners.
Whole of Life Insurance and Inheritance Tax Planning
Understanding the broader financial planning framework used by many expatriates can also help.
Complete UK Expat Wealth Planning Guide
If you are building a long-term financial plan, retirement planning is also an important consideration.
Build a Bullet Proof Retirement Plan
Relevant tools and calculators
If you would like help reviewing financial documents or understanding financial structures, this tool may help.
You can explore the full collection of financial planning tools available on the site.
FAQ
What is key person insurance?
Key person insurance is a policy taken out by a business to protect against financial loss if an important employee or owner dies or becomes seriously ill.
Who is considered a key person?
A key person is typically someone whose skills, knowledge or relationships are critical to the success of the business.
Why do companies use key person insurance?
It helps provide financial stability during a difficult period by replacing lost revenue or funding the recruitment of a replacement.