Every successful business has one thing in common: great people. The ones who bring in clients, keep operations moving, and make the tough decisions every day.
But what would happen if one of those key people - maybe even you - suddenly couldn’t work because of illness or death?
For many small businesses, that scenario could mean lost clients, cash flow problems, or even closure. That’s why Key Person Insurance (sometimes called Key Man Insurance) is one of the most important, yet most overlooked, forms of protection for businesses of all sizes.
At Calluna Financial, we help business owners in Glasgow, Falkirk, Stirling, Clackmannanshire, and all over Central Scotland, protect the beating heart of their companies - the people who make it all happen.
What Is Key Person Insurance?
Key Person Insurance is a business protection policy that pays out a lump sum if a key individual in your business dies or becomes critically ill.
That payout can then be used to:
- Replace lost revenue or profits
- Cover the cost of recruiting and training a replacement
- Repay business loans or overdrafts
- Reassure investors or lenders
- Stabilise the business during a difficult period
It’s designed to protect the business, not the individual’s family (although the structure can be adapted if needed).
In short - if losing that person would cause financial damage to your business, then they’re a “key person” worth insuring.
Who Counts as a Key Person?
A key person isn’t always the business owner. It could be anyone whose skills, knowledge, or relationships are critical to the company’s success.
Examples include:
- Directors or founders – who drive growth and manage finances
- Top salespeople – who generate a large portion of revenue
- Specialist staff – who have unique expertise that’s hard to replace
- Operations or project managers – who keep the business moving day to day
If your business would struggle to function or maintain income without someone, they’re a key person.
Why Key Person Insurance Matters
Think about how much time and effort it’s taken to build your business - the relationships, the systems, the client base.
Now imagine that all being at risk because one person is suddenly out of the picture.
Without protection, the financial impact can be severe:
- Clients might go elsewhere.
- Income could drop sharply.
- Loan repayments or overheads might become difficult.
- Recruitment and training costs can add up fast.
For small to medium-sized businesses, even a few months of disruption can be devastating.
Key Person Insurance ensures your business has the financial cushion to recover and continue - protecting everything you’ve worked for.
Key Person Insurance vs. Life Insurance
Many business owners assume their personal life insurance will cover the business. Unfortunately, it doesn’t.
Here’s the difference:
- Personal Life Insurance protects your family.
- Key Person Insurance protects your business.
They serve very different purposes. In the same way you wouldn’t use your home insurance to cover your office, you shouldn’t rely on personal cover to protect your business operations.
How Key Person Insurance Works
- The business takes out the policy on the life of a key person.
- The business pays the premiums.
- If the key person dies or is diagnosed with a critical illness, the policy pays out a lump sum to the business.
- That money can be used however it’s needed to keep the business stable.
You can also combine life cover and critical illness cover within one policy, so the business is protected in both scenarios.
Real-Life Example
Imagine a small mortgage firm with three advisers - and one of them, the most experienced, generates 40% of the company’s annual revenue.
If that adviser were suddenly unable to work due to illness, the impact would be immediate: reduced income, unhappy clients, and increased pressure on the remaining team.
With a Key Person Insurance policy in place, the firm could use the payout to:
- Hire a temporary replacement
- Cover lost income
- Continue paying staff and overheads while they rebuild
That’s how businesses survive unexpected shocks — with the right protection in place.
The Financial and Legal Structure
The policy is owned and paid for by the business, and the business is the beneficiary.
Typically, the sum insured is based on:
- The key person’s contribution to profits
- Their annual salary or the revenue they generate
- Outstanding business loans that depend on them
Some businesses also take out Loan Protection alongside Key Person cover — ensuring any bank or investor loans tied to a specific individual are cleared if something happens to them.
The Ripple Effect of Losing a Key Person
When a key individual is lost, the impact goes beyond finances. Morale drops, confidence wavers, and clients may question stability. For small, tight-knit teams, this disruption can be felt deeply.
Having Key Person cover in place sends a strong message - to staff, clients, and lenders - that your business is well-prepared and resilient. It demonstrates professionalism and foresight.
Common Misconceptions
“We’re too small to need it.”
Actually, smaller businesses are usually the most vulnerable. Larger firms can absorb loss; smaller ones can’t.
“It’s too expensive.”
The cost is often much lower than expected, especially compared to the potential loss of revenue. Premiums are based on the individual’s age, health, and role.
“We’ve got savings to cover that.”
Savings run out fast, and using them might mean sacrificing growth or investment plans. Insurance ensures your savings remain intact.
Tax Treatment
The tax rules can vary depending on how the policy is structured, but generally:
- Premiums may not always be tax-deductible.
- The payout is usually tax-free if structured correctly.
At Calluna, we’ll work with your accountant or adviser to make sure the policy is set up in the most tax-efficient way for your business.
Who Needs Key Person Insurance the Most?
This cover is vital for:
- Small business owners and partnerships
- Independent professionals (financial advisers, solicitors, accountants, etc.)
- Trades and service companies relying on one or two skilled staff
- Growing firms where a few people drive most of the business development
If the business’s ability to generate profit depends heavily on one or two people, Key Person cover should be part of your plan.
Protecting Businesses Across Central Scotland
In areas like Glasgow, Falkirk, Stirling, and Clackmannanshire, most local firms are small-to-medium-sized and built on personal relationships and reputation. Whether it’s an estate agency, construction firm, or family-run business, success often comes down to a handful of people.
Key Person Insurance helps protect that success - ensuring your company, your team, and your clients are supported even if the unexpected happens.
It’s about keeping jobs secure and businesses running smoothly, not just protecting profits.
FAQs – Key Person Insurance
Q: Can more than one person be covered?
A: Yes, businesses can take out multiple policies for different key individuals.
Q: Does the money have to be used for a specific purpose?
A: No. The payout can be used however the business needs - to manage cash flow, pay debts, or fund recruitment.
Q: Is it only for limited companies?
A: No, partnerships, LLPs, and sole traders can all take out Key Person Insurance.
Q: Can this be combined with shareholder protection?
A: Yes. Many businesses use both - Key Person Insurance for operational security and Shareholder Protection to maintain ownership control if a partner dies.
Why Choose Calluna Financial
At Calluna Financial, we understand that for most local businesses, people are the business.
We take the time to understand your company’s structure, revenue model, and potential vulnerabilities, so we can design protection that fits perfectly.
Our clients appreciate:
- Independent advice – We compare leading insurers to find the right cover.
- Clear explanations – We make complex business protection simple.
- Local expertise – We understand how small businesses in Central Scotland operate.
- Ongoing support – We review your cover as your business grows or changes.
Secure the Future of Your Business
Key Person Insurance isn’t just another business expense - it’s a lifeline. It ensures that if the worst happens, your business can keep running, your staff can stay employed, and your reputation remains strong.
Every business has one or two people who are simply irreplaceable. Protecting them protects everything you’ve built.
Speak to Calluna Financial today to arrange a free consultation. We'l help you secure your business, your people, and your peace of mind with the right Key Person Insurance.
