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Businesses at risk over key personnel loss

More than half of UK businesses (55 per cent) would cease trading if they lost one or more key employees to illness or death, research from Scottish Widows has found.

Despite this, only one in five companies has key person insurance protection in place to provide cover in such an emergency.

Other key findings from the Scottish Widows 2013 Business Protection Report include:

  • 77 per cent of employers believe they have at least one employee whose absence due to long term incapacity, critical illness or death would 'seriously impact the profitability or survival of the business'
  • The number of businesses with liabilities - business loans, mortgages and overdrafts - has risen from 34 per cent to 42 per cent in two years
  • The number of businesses with liabilities but no financial plans in place for the loss of a key person has increased marginally from 32 per cent to 34 per cent in the same period
  • Delivering commitments and promises to customers was a priority for 68 per cent of businesses; insuring a key person or employee was a priority for only three per cent.

Small companies in particular would be adversely affected by the temporary or permanent loss of a key person. Almost three quarters of the report's respondents were the owner, founder, partner or all three of their company.

Katya MacLean, protection specialist at Scottish Widows, said:

"Businesses need to strike a balance with their priorities. They can survive without a photocopier, for example, for a short period but the majority would be in far greater difficulty in both the short- and long-term if they were to lose one or more of their key employees."

"Companies need to look carefully at succession planning and all the risks posed to a business regardless of how likely they are to happen to ensure they can continue to meet what they consider their key business priorities, whatever the eventuality."