Most businesses have one or more key people whose skill, knowledge, experience and leadership generate significant revenue. If they were unable to work, the business could suffer a drop in revenue, or incur costs to find and train a successor.

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Risky Business
If an owner or key person is unable to work through illness or injury, it doesn’t take long for
the business to be affected. The absence of that key person can put pressure on the rest of
the team to pick up the slack or employ extra staff.
The flow-on effects can include slower production, rising costs, or reduced revenue. Left
unchecked, a cashflow crisis can erupt as profits reduce, and the business struggles to pay
creditors.
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2. To protect a business against these risks, there are three basic protection needs that should be covered.
Asset protection
Asset protection insurance helps maintain cash flow, credit standing and assets if a key person in the business is out of
action. It can provide money needed to repay debts to banks or other creditors.
It’s called asset protection because if you don’t protect your debts, your assets will more than likely be at risk, as they’re
usually financed by a loan or credit facility and held as security for that loan.
Revenue protection
Most businesses have one or more key people whose skill, knowledge, experience and leadership generate significant
revenue. If they were unable to work, the business could suffer a drop in revenue, or incur costs to find and train a
successor.
Revenue protection provides a lump sum to compensate for the loss of revenue caused by the absence of that key
person. It also buys the business time to adjust and keeps it alive as a going concern. If a new person needs to be
employed, the insurance can provide funds to finance the recruitment process.
Ownership protection
If one of the owners of a business dies or has to exit the business because of illness, the continuing owners might
struggle to negotiate and fund a buy-out of the exiting partner’s equity. This is often complicated by dealing with heirs or
legal representatives of the estate, whose priorities may not include the ongoing value or viability of the business.
Ownership protection insurance, coupled with a legal buy-out agreement, provides the continuing owners with the legal
right of purchase at a predetermined price. It can also help fund the purchase of the exiting owner’s equity. The exiting
party has peace of mind they, or their family, are going to get fair value for their business if they die, or are unable to work
due to illness or disability.
The continuing parties benefit too. They can maintain control of the business without having to raise additional capital to
take on more debt or be forced to hastily bring in new business partners.

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