Most business owners have a firm grasp of the risk management concept, in which risks to business profits and assets are assessed, programs are designed to minimize these risks and insurance is provided to financially recoup losses caused by unavoidable risk. How many business owners do you know whom don't have fire insurance? Liability? Business interruption protection? Even life insurance?

How many businesses have key employee life or disability insurance? How many have even heard of them?

The contributions of a few employees comprise the majority of success among small businesses. Among one person companies, the value of that one employee almost always equals the value of the business. But even in larger companies, a majority of earnings often can be traced to one or a few key people. Not insuring this reason for business profits a human being can bring consequences as dire as a fire or strike for an uninsured owner.

To better illustrate the point, we'll create a fictional company, Ajax, that supplies parts for a not so fictional industry, medical electronics. Ajax does $100 million a year in sales, but that could quadruple in the next decade. Even though the company has over 100 employees, one person, Dr. Harvey Beep, generates 75% of the sales. Think that's a stretch? We'll go on.

Dr. Beep had a long career as a medical researcher and marketer before joining the company. He's one of five principals the other four are technical geniuses who lack sales savvy and are relatively new faces. Dr. Beep, meanwhile, enjoys a long, sterling reputation with hospitals and medical associations around the country. The competition is tough, but his word is as good as gold and so are his company's products.

Now suppose Dr. Beep becomes disabled or passes away. What happens to his customer base? The customers might still be impressed with the technology they've bought, but medical electronics comes up with new advances at a lightening pace. Ajax's other principals try the sales route, but they're just not salespeople. They might even hire the next best medical electronics salesperson available, but what do they lose in earnings and market share during the transition? Can they ever make up those losses?

Key employee insurance covers the costs of this unexpected loss.

Not preparing for and insuring against the loss of a key employee is a lot like playing Russian Roulette. Maybe the business will survive the loss or maybe it won't. Key employee insurance takes that last bullet out of the chamber.