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KEY PERSON (Asset and Revenue Protection)
When asked what their most important assets are, business owners invariably think of physical assets. They are valuable to every business, but it's the intellectual capital provided by the key people - like you and your business associates - that employ these assets to generate the business's profits.

These key people are the most important assets of the business, and their continued contribution is critical to the long term success of the business.

The Problem
A key person's death or disablement can result in financial loss more disastrous than any loss of, or damage to, physical assets. Material things can always be replaced or repaired. When a key person dies or is disabled they are lost to the business forever, which can create the following immediate financial problems for the business:

• Asset preservation
  Without the security provided by the key person, the business may be forced to sell assets to maintain cashflow if creditors press for payment and debtors hold back payment. Customers and suppliers may not feel confident in the trading capacity of the business, and its credit rating could fall if lenders are not prepared to extend credit. Outstanding loans owed by the business to the key person may also be called up for immediate repayment.
• Loss of revenue and replacement costs
  A drop in revenue is often inevitable when a key person is no longer there. Losses may result while finding and training a suitable replacement, from demand that can't be met, errors of judgement by a less experienced replacement or through the reduced morale of employees. If there isn't a suitable replacement within the business it may take substantial time and financial inducement to find and train a successor.

The Solution
To overcome these financial problems, following a key person's death or disablement, a business would need a readily available cash reserve. For most businesses, this presents a funding problem. Not only would it generally take many years to accumulate an adequate cash reserve, but the key person's premature death or disablement would almost certainly result in insufficient accumulated cash.

Business protection insurance can provide the required cash on a key person's death or total and permanent disablement, or their diagnosis of a critical illness, and at only a fraction of the cost of alternatives.

Compare the Alternatives
There are other ways of raising the required cash but each has its drawbacks:

• Realising business assets
  The forced sale of business assets could result in substantial losses. Furthermore, they are generally required to generate income or may have already been put up as collateral security.
• Borrowing the cash
  Borrowing the cash is an option many businesses could consider, but lenders may not be prepared to extend credit after a key person's death or disablement because the future of the business is uncertain.
• Creating a contingency reserve
  Creating a contingency reserve would mean locking away critical working capital otherwise available to the business.
• Absorbing the financial loss to the business from current profits
  This can be risky because it assumes profits will be sufficient to absorb the loss.

Summary
Asset protection can provide the business with sufficient cash to preserve its asset base, i.e. to repay debts, free up cashflow and maintain its credit standing, if a key person dies or is disabled.

Revenue protection can provide the business with sufficient cash to compensate for the loss of revenue and associated replacement costs, if a key person dies or is disabled.

Click here to enquire about Key Person Insurance