Like most business owners, you’re concerned about protecting your business assets and ensuring that potential liabilities are covered. But have you thought about protecting your most important asset – your key people?

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The loss of a key person can have a particularly harmful effect on small to medium-sized businesses where it is often difficult to replace a key employee. Often that employee has special talents or knowledge essential to the operation and success of the business. As a result, many businesses now insure the lives of key employees to protect themselves against any monetary loss that could result from their deaths.

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The employer would be the owner and beneficiary of the policy. The key employee would be the life insured, but would receive no benefit from the existence of the policy. Under the "Income Tax Act" no deduction can be claimed by the employer for premiums paid under a key person policy. However, any death benefit proceeds would be received tax free by the employer and would provide the liquidity needed to hire and train new skilled individuals and provide cash flow through a period of sales declines.

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Use the following questions as a guideline:

• How much would it cost to replace the employee in question?
• How much is the employee worth to your firm in net profits?
• All told, how much would it cost your firm if this employee died today?
• What proportion of the true risk of loss are you able and willing to insure?

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For more information on Key Person Life Insurance, talk to your agent.