Why adviser capacity still matters when reviewing key person insurance

For business owners, the issue is even sharper. Key person insurance is rarely a simple product comparison exercise. It can involve assessing how much revenue depends on one founder, director, salesperson or technical specialist; how long the business could operate without them; what debt or guarantees may need to be protected; and whether the policy is intended to support revenue, capital needs, ownership transfer or a buy/sell arrangement.

A steadier adviser market is encouraging, but it does not mean every business will find the right expertise at short notice. Risk insurance specialists still need time to understand the business, gather financial information, review existing policies and work through underwriting. If a key person has health history, a hazardous occupation, extensive travel or a complex remuneration structure, the process can take longer than expected.

The practical lesson is to prepare before the need becomes urgent. Businesses reviewing key person cover should document:

• which people are genuinely critical to revenue, operations or client retention;
• the likely financial impact if each person died, became totally and permanently disabled or suffered a serious illness;
• existing business debts, personal guarantees and investor obligations;
• expected replacement, recruitment, contractor and transition costs;
• whether current cover still matches turnover, margins and ownership structure.

This preparation can make conversations with professional advice providers more efficient and reduce the chance of choosing cover based only on premium. It can also help owners understand why two policies with similar headline benefits may produce very different outcomes once definitions, exclusions, ownership, tax treatment and claim requirements are considered.

Affordability remains important, particularly for SMEs watching cash flow. However, cutting sums insured without a clear rationale can create a false sense of security. A better approach is to estimate the commercial exposure, then compare options that balance cost, claimability and business continuity needs.

The emerging message from the advice market is positive but cautious. If adviser capacity improves, more businesses may be able to get timely life insurance guidance. Even so, key person cover should not be left until finance is being renegotiated, a shareholder is exiting or a health event has already occurred. The best time to review protection is while the business is stable enough to make considered decisions.