Danielle Robinson, Senior Insurance Adviser at Cavendish Online, a UK life insurance broker specialising in business protection insurance for owner-managed SMEs, discusses key person cover, shareholder protection, critical illness disruption and the questions SME directors may want to consider when reviewing business continuity arrangements.. 

For most SME directors, risk isn’t ignored. It just gets pushed down the list.

There is always something more immediate. Sales targets. Staffing. Cashflow. The next contract.

Protection tends to sit in the background until something forces the conversation. By that point, decisions are often reactive rather than planned.

When a Business Relies on a Few People

In many SMEs, the business depends on a small number of individuals.

That might be a founder responsible for bringing in the majority of revenue. A director who manages key client relationships. Or someone who understands how everything fits together operationally.

If that person is suddenly unavailable, the impact tends to show up quickly.

Revenue can dip if deals stall. Projects can slow if decisions are delayed. Other team members may need to step into roles they are not fully prepared for.

It is rarely a single major issue. More often, it is a series of smaller disruptions that begin to affect performance over the space of a few weeks or months.

Where Key Person Cover Fits In

Key person cover is designed to give a business financial breathing room if someone central to its success can no longer work due to serious illness or death.

Businesses tend to use it in different ways.

Some use it to offset a drop in revenue while responsibilities are redistributed. Others use it to fund recruitment or bring in temporary expertise while they stabilise operations. And some may use the funds to repay business loans following the death or critical illness of a business partner, key person or sole trader

This is typically considered alongside wider business protection insurance arrangements, which are structured to help businesses manage financial risk linked to people, ownership, and continuity.

Without that kind of support, the fallback is usually existing reserves or borrowing. That can be difficult if income is already under pressure or if decisions need to be made quickly.

As with any financial arrangement, how it is structured depends on the business itself and the level of cover put in place.

When Ownership Becomes a Problem

Ownership structures often receive less attention than they should.

In many SMEs, shares are held by a small group of individuals. If one of those shareholders dies or becomes seriously ill, those shares typically pass to family members or beneficiaries.

That can create immediate operational and financial complications.

For example, a business may find itself in a position where:

• decision-making slows because ownership is no longer aligned
• remaining directors need to negotiate with individuals who are not involved in the business
• funds are required quickly to buy shares back and retain control

These situations are not uncommon, but they are rarely planned for in advance.

Arrangements such as shareholder protection are intended to provide a structure for handling this, including how shares are valued and how remaining shareholders can retain control.

Illness Is Often the Scenario That Causes Disruption

While many directors focus on worst-case scenarios, serious illness is often the more likely risk.

A director stepping away from the business for six to twelve months can have a noticeable impact, particularly in smaller teams.

Client relationships may need to be reassigned. Ongoing work can slow down. Internal pressure increases as others take on additional responsibility.

At the same time, fixed costs do not change. Salaries, rent, and supplier commitments still need to be met.

It is this combination of operational disruption and ongoing financial commitments that tends to create the most pressure.

Questions That Highlight the Gaps

For directors who have not reviewed this area recently, a few practical questions can help bring things into focus:

• If a key person stepped away tomorrow, where would the impact be felt first?
• How long could the business absorb that disruption without affecting revenue or delivery
• Would there be sufficient financial flexibility to manage that period without making reactive decisions
• Are there clear agreements in place around what happens to shares if circumstances change

These questions do not need perfect answers, but they do tend to reveal whether current arrangements reflect how the business actually operates today.

How Businesses Typically Approach This

There is no single way to approach protection planning.

Some businesses prefer to take regulated advice. Others choose to research their options and make their own decisions.

Firms such as Cavendish Online operate on a whole-of-market basis, providing access to protection options from a range of UK insurers, with both advised and non-advised routes available depending on how businesses want to approach the process.

What is appropriate will depend on the structure of the business, its financial position, and how much risk it is prepared to carry.

Where This Leaves Most SMEs

Most SMEs do not have a protection issue because they have ignored it.

More often, it is because the business has changed. Revenue has grown. Teams have expanded. Responsibilities have shifted.

What was put in place a few years ago may no longer reflect how the business operates today.

Taking the time to step back and assess how the business would cope under pressure can be uncomfortable. It can also be where the most useful decisions are made.