If you have a family, you probably know life insurance can help protect your loved ones financially if you pass away. But do you have life insurance to help protect your business? Yes, there is such a thing: It's known as key person life insurance or 'key man' insurance.

Key person insurance is designed to protect businesses in the event that a key person, such as a partner or director, dies or becomes unable to work. The insurance is taken out by the business on the lives of named key persons, with premiums generally paid for by the company.

If you are a small business owner, you are one of your business' Key-Persons. A true key-person has three critical qualities. He or she has a direct and significant impact on the value of the business. The employee's role in the company, responsibilities, and decisions impact sales, profitability, growth, product development, or another critical value driver in the business.

The business is the beneficiary of the policy. If the insured person passes away or becomes disabled, the business receives money to transition from the loss.

The proceeds from key-person insurance can be put toward any of the following:

• Covering operating expenses until you find a replacement hire.

• Training the replacement hire.

• Offsetting lost income.

• Purchasing a former owner’s ownership interest in the business (you should also have a buy-sell agreement if you plan to use key person insurance for this purpose).