How can SMEs protect against the loss of a key leader?

For many small businesses, the loss of a key leader would spell the end of the business. 

In fact, a recent survey found that more than one in four (26%) small businesses in the UK would have to immediately close if a key person died or became critically ill*. Mike Dickinson, Sales & Marketing Director at Nottingham’s largest independent insurance brokers, Russell Scanlan, looks at how business can protect themselves against life’s unforeseen events and the economic impact of failing to plan ahead. 

Business are all too aware of the need for buildings insurance for their premises, fleet insurance for vehicles and professional indemnity or public liability to cover business activities.  However they often don’t think about protecting their most important assets – their people.  A recent survey from Legal & General found that 70% of small and medium businesses said they had never considered, or did not understand the need to insure against the loss of a key member of staff.

A key person is someone whose illness or death would directly cause a financial issue for a business, such as a fall in revenue, loss of clients or even a loss of efficiencies.  It doesn’t have to be the business owner; it can be anyone - the director whose vision is the driving force behind the business, or the technical guru who knows the company’s product inside out.

Without the relevant Business Protection, the impact of losing a key employee or business owner could have devastating repercussions.  More than a quarter (26%) of small businesses said they would be at risk of immediate closure following the loss of a key person, with a further 26% likely to cease trading within a year.

The potential economic impact of businesses failing to protect against such eventualities is staggering.   SMEs account for more than 99% of the UK’s private sector businesses, employing over 16 million people.  This means that up to nearly three million of these companies could be at risk of closing within a year of losing a key person, with around 4.3 million employees facing losing their jobs.

So what should businesses do to ensure their future viability in the face of losing a key leader?

Get the right insurance over

Business protection plans are designed to safeguard the people who matter most to the successful running of a business.  There are lots of different options to consider but the key types of policies for any SME include:

  • Key Person Insurance – this will guard against the costs associated with losing vital employees.   Businesses can claim for a lump sum payment which can be used to mitigate against losses and/or assist the recruitment of a replacement member of staff.
  • Ownership (Shareholder or Partnership Cover) - Shareholder and Partner Protection provides a business with a cash lump sum if an owner passes away or suffers a severe illness. This lump sum helps the remaining business owners minimise disruption to the business, by providing capital that enables them to buy that shareholder’s or partner’s shares and so keep control of their business.
  • Loan Protection Cover - provides peace of mind that a business can repay its borrowing if a shareholder or business partner dies or suffers a severe illness. It provides a lump sum to cover business loans and other credit facilities, some of which may have personal guarantees or have to be repaid when someone dies.

Have a succession plan

Succession planning is a short and long term strategy used to identify and develop individuals to fill business-critical positions. The aim is to effectively develop individuals to ensure employees are prepared to fill a key role when pivotal people exit the business for whatever reason.

Start by auditing the skills and experience that each employee currently offers – map these against what your company needs. This will enable you to assess what competencies might be missing and focus on what you would need to replace immediately. You are likely to have staff with potential to take on senior jobs in the future even though they are lacking the necessary skills right now. By identifying and training future key staff, you’ll motivate them and get them ready for challenges to come.

Don’t ignore the emotional impact

Regardless of circumstances, the loss of a key member of staff can also have a knock-on effect on morale. Exploring the range of employee assistance programmes out there which offer counselling and support should make you better placed to deal with the difficult personal effects of losing a member of staff.

Working with an insurance broker will ensure you have the right knowledge and are better placed to make informed decisions about your insurance needs.  For more information on how Russell Scanlan can support your business, call 0115 947 0032 or visit

Picture: Mike Dickinson, Marketing Director

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