Almost two-thirds (63%) of small, family-run businesses would not survive the loss of a key member of staff, according to Scottish Widows.
However, the Scottish Widows Business Protection Report found the majority of businesses are still reluctant to protect themselves from the unexpected.
Only 6% of UK businesses have financial protection to cover the death of key person while only 4% have protection for a key person suffering a critical illness.
It surmised that by nature smaller businesses are more exposed to certain risks and in particular the loss of a key player. Yet, despite this, 60% say they do not think they need a protection policy in place.
John Walker, Chairman, Federation of Small Businesses, agreed this was a problem.
He said: "The loss, even temporarily, of a key staff member or other interruption is always going to hit the smallest firms the hardest.
"A single member of staff could be half your workforce. It is therefore vital that small businesses get their contingency plans in place now, not when trouble strikes."
Iain McGowan, Head of Savings and Protection at Scottish Widows commented: "Businesses need to consider the key risks they face to all aspects of their operation. This includes planning for the very real risks their business could face from death, critical illness, or long term incapacity of a key employee or business owner.
"This responsibility for further education and understanding sits with the industry, Government and businesses themselves."
