More than half of companies (55 per cent) would cease trading if they lost one or more key people to illness, long-term incapacity or death.
However, just one in five companies have insurance in place to protect against such a loss, according to the latest research from Scottish Widows.
Over three quarters (77 per cent) of respondents report that there is at least one employee in their organisation whose loss through death, critical illness or long term incapacity would seriously impact the profitability or survival of the business.
This "worrying trend" is set against a rise in the number of companies with liabilities (such as business loans, mortgages and overdrafts) from 34 per cent to 42 per cent in two years, coupled with a small increase in the number firms from 32 per cent to 34 per cent with liabilities but no financial plans in place should they lose a key person.
Businesses in the UK are operating in an uncertain economic environment and owners and directors are focusing on day-to-day challenges. Nearly 70 per cent of companies identified 'delivering on commitments and promises to customers' as the most important aspect of their business and top of the list for 32 per cent of firms was the need to cover their fixed overheads.
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In contrast, insuring against the death of a key person was picked out by just 3 per cent as their biggest priority. The results were almost identical when it came to insuring against a key person suffering a critical illness or long-term incapacity.
Almost three quarters of respondents to the Scottish Widows Business Protection Report are an owner, founder, partner or all three of the company. With such small teams predominant within this business demographic, the loss, either temporary or permanent, of just one member of staff can have an overwhelming impact on an organisation's ability to operate and maintain continuity of business. Many firms feel the likelihood of such an eventuality is relatively low, however, of the 14 per cent that have been impacted, 44 per cent said they suffered a loss of revenue and 55 per cent were affected by the loss of expertise.
Katya MacLean, head of bancassurance enablement and protection, said: "Attracting customers and keeping them happy should always be a company's priority, likewise insuring premises and the equipment that keeps it going. However, while business protection insurance for staff is rarely a priority, its absence can be the biggest single risk to the profitability and even the very existence of a business.
"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."