Why business protection is key for the future of SME’s
It’s a well know adage that people are the beating heart of every successful company – from the newest start-up to the multi-generational established firm. Although large multinationals tend to make the headlines more often, Ireland is a nation of small or medium-sized enterprises (SMEs), and the economic impact of the sector is significant. Local SMEs employ over 1.5 million people in Ireland1 which is over half of the Irish labour force of 2.8 million people2. The continuity of these businesses is vital to the Irish economy.
Attracting, developing, and retaining talented workers, many of whom are indispensable for the functioning of the business, is essential – and well-run firms will have robust practices for doing this. But what is too often overlooked is the planning for suddenly losing a key person through illness or death, a fact that creates a significant financial risk.
But who are key people? These are individuals who are essential to a business's ability to operate and generate profits. They’ll include owners, directors, managers, but also specialist employees. If any of these key individuals were to become seriously ill or pass away, it can have a significant negative impact on the company, particularly for small or medium-sized enterprises.
The financial risks of losing a key person
If a key person dies unexpectedly or is diagnosed with a serious illness and is no longer able to perform their business responsibilities, a business can encounter operational difficulties and face several financial challenges.
- Loss of productivity: The absence of a key person will almost certainly hit a business’s productivity. The business can (partly) lose its ability to operate and generate a profit.
- Loss of clients due to delays: As the company struggles to maintain its productivity, delays can arise. In a small firm, this could happen within just a few weeks. As the company struggles to meet demand, some clients will start to look elsewhere, and competitors will get their foot in the door.
- Business liabilities: Many companies have business loans that require regular payments. When a key person is a director, they may also have lent money to their own business, which upon their death must be repaid to their estate. If the business cannot do this, it may result in business insolvency.
- Replacement costs: Replacing a key person is a challenge. Their absence leaves a gap in the organisation, but the key person’s work responsibilities will still be there. This means the company may need to recruit someone with a certain skill set, or they may need to train and upskill an existing colleague.
Almost all SMEs are to a certain degree financially exposed to keyperson risk
Although no specific data is available for Irish SMEs, research carried out in the UK stated that 94% of the 500 SMEs surveyed recognise that they have at least one key person. 60% of businesses said they had three or more key persons. Shockingly, 70% of businesses said they would expect to have to cease trading in less than two years after the loss of a key person, and 60% of small businesses think they would cease trading within one year of losing a key person3.
The case for starting the conversation about business protection
There are almost 390,000 private sector businesses in Ireland1. 99.8% of those businesses have fewer than 250 employees and can be considered SMEs. There are over 380,000 businesses with 50 employees or less1. Many of those companies will have keypersons without whom they lose the ability to operate efficiently. Many of these thousands of companies will not have cover in place to carry the financial loss of losing their keyperson(s) due to an untimely death or serious illness. The opportunity is there, but in the market of protection sales, business protection is easily overlooked.
Businesspeople understand risk – but they need to see it
Before introducing the solutions that business protection can offer, take a step back and focus on the need for it. People are unlikely to consider a solution if they don’t see the problem. Businesspeople will often overlook the risk of not having business protection because no one has quantified the risk for them.
Presenting the problem should be kept simple. Who are the key people? Do they have enough capital to sustain the company, meet potential loan payments, and pay employees? What other financial obligations does the company have? And if the business is a partnership, do they have sufficient capital to buy out their partner's business interest? Get the numbers, write them down. It's crucial to take the time to explain this very real, yet often underestimated and therefore underinsured, issue.
Protecting business by protecting people
Basically, there are two risks that can be addressed with business protection.
Futureproof the business with a keyperson policy
When a key person can no longer do their work because of an unexpected death or serious illness, the company can suffer financial and operational losses. Keyperson Insurance can be purchased by the company to protect against the financial consequences of the death or serious illness of one of their key employees. The employer pays the premiums, and in the event of the insured's death, a cash lump sum is provided to help maintain the business, repay business loans, and fund the recruitment and training of a replacement employee, thereby protecting its future resilience.
Protect the ownership structure with a co-director or partnership protection policy
If the company has multiple business partners and one of them dies, their shares will become part of their estate. This means that (potentially unqualified) relatives could inherit their shares and get involved in the business. The remaining directors may wish to buy them out, but to do so, they need to have enough money to buy their shares, and the estate needs to be willing to sell.
A co-director or partnership protection policy will ensure that funds are available if one of them dies, allowing the remaining directors to buy the shares from the deceased partner's relatives. Occasionally, the relatives don’t want to sell. This is why it is advisable to have a shareholder agreement in place in which the business owners set out how they want the business to continue if they were to die. Control over ownership is one of the primary considerations of this type of business protection. However, ensuring that the value of your client’s share in their business is passed on to their family is equally important.
Co-director or partnership protection can also provide a solution in the event of a serious illness. If the director has this cover in place and, upon diagnosis of a serious illness covered in the policy, wishes to leave the firm, the policy will provide the cash needed to buy their shares.
Time to start the conversation
The potential for business protection in the Irish SME market is there, but many SMEs fail to see the need for these products. Financial advisors have a critical role to play in helping SMEs understand the risks they face and the solutions available to them. This proactive approach not only helps secure the future of these businesses but also strengthens the overall economy. It's time to start the conversation and ensure that SMEs are prepared for the unexpected.
The information contained herein is based on Zurich Life’s understanding of current Revenue practice as at July 2025 and may change in the future.
1Central Statistics Office, Business in Ireland – Insights on the Lifecycle of Businesses, 2022
2Central Statistics Office, Labour Force Survey Quarter 4, 2024
3Legal & General, State of the Nation’s SMEs, 2021
