Hiring your first employees changes the business. Work can be shared, projects can move faster and you may finally have time to develop new opportunities. Yet having a team does not necessarily mean the company could operate without you.
For a contractor building a small company, delivery may now sit with employees while sales, pricing and client confidence still rest with the founder. The useful question is not whether the team is capable. It is which parts of the business still depend on one person, and what it would cost to replace their contribution.
Look beyond the headcount
Start with three areas: revenue, relationships and critical skills. Which contracts do you personally win or renew? Which clients speak only to you when priorities change? Which technical decisions cannot be made without your involvement?
Then apply the same questions to your first hires. A specialist employee or relationship manager can also become a key person. The relevant issue is their contribution to the business, not simply their title or shareholding. Broadbench’s key person guidance identifies expertise, project delivery and customer relationships as areas worth reviewing. [1]
Write down the responsibilities and name a deputy for each. Where there is no realistic deputy, record the gap rather than assuming someone will manage.
Put a cost against the recovery period
Replacing a person’s contribution involves more than paying a recruitment fee. Key person policy proceeds could help address lost profits and the cost of recruiting or training a replacement, subject to the chosen cover and a valid claim. [2]
Estimate how long it might take to appoint someone, introduce them to clients and restore productive capacity. Use your own accounts to assess the profit contribution at risk. Turnover alone will not show the full picture because some costs may fall while others continue.
Add likely temporary support, recruitment and training costs. Consider how much available cash could genuinely support recovery after normal commitments are met. Ask your accountant to help separate lost profit from additional costs so you do not count the same shortfall twice. This produces a useful starting point for advice, not an automatic insurance amount.
Check what would actually trigger a claim
For a limited company, key person life cover is typically owned and paid for by the business, with a lump sum payable to it following a valid claim. Life cover responds to death during the policy term. Critical illness cover, where selected, responds to conditions meeting the policy’s definitions. Some plans also include terminal illness cover under a specific definition. [2]
Do not translate “critical illness” into “any illness that stops me working”. The ABI explains that a critical illness claim is triggered by meeting the definition of a specified condition within the policy. Not every sickness absence is covered. [3]
Some insurers offer separate key person income protection for inability to work through illness or injury. This can provide a monthly benefit to the business, rather than a lump sum, subject to the plan’s incapacity definition, deferred period, limits and exclusions. Ask which type of cover is being discussed. [2]
Keep three different needs separate
Business recovery, your income and company ownership are different financial needs. Personal income protection generally replaces part of your income through regular payments when covered illness or injury prevents work, after the agreed waiting period. [4]
Executive Income Protection is arranged through the business to support an insured employee’s sick pay under its terms. It is not simply a fund for replacing lost company profits. [5]
Shareholder Protection concerns funding the purchase of shares under appropriate arrangements. A key person policy intended for trading recovery does not automatically fund that separate ownership need. [6]
Reduce the dependency as well as insuring it
Insurance can provide money after a covered event. It cannot document your processes or introduce another employee to a client.
Make those preparations now. Arrange shared client meetings and record renewal dates, agreed commitments and project decisions. Give an appropriate colleague authorised access to essential business systems using secure arrangements. Document who can approve spending or contact suppliers if you are unavailable.
Test a short, planned period away from daily decisions. Record what stalls and assign someone to resolve each gap. This is a practical way to see whether responsibilities have genuinely moved beyond the founder.
Bring the right information to a review
Gather recent accounts, a current cash flow forecast, key role descriptions and existing policy schedules. Include your dependency notes and recovery cost estimate. Ask an adviser to confirm who should be insured, the purpose of the cover, who receives the benefit and what would trigger payment.
Speak to Broadbench about Key Person Protection for a review based on how your company now works. The aim is to understand the remaining gaps and suitable options, not to assume that every new hire means another policy.
This article provides general information, not a personal recommendation. Eligibility, underwriting, policy terms, definitions, limits and exclusions apply. Cover and claim outcomes depend on the policy and circumstances.
Sources
[1] Broadbench: Key Person Insurance
[2] Legal & General: Your guide to Key Person Protection, document 2343 12/25
[3] ABI Guide to Minimum Standards for Critical Illness Cover, updated April 2023
[4] MoneyHelper: What is income protection insurance?
[5] Broadbench: Executive Income Protection
[6] Broadbench: Shareholder Protection
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