The No. 1 thing every business owner needs to do to protect their legacy

Here's a question every entrepreneur ought to consider: What would happen to your business if one or more of your key employees died suddenly or could no longer work because of a disability?

In his experience, business owners don't tend to look for key man insurance until they come to the stark realization that their own death, or the death of a critical employee, could cripple what they've spent years building. Key man insurance, says Grammatic, can help take the financial pain out of recruiting and training a replacement employee or even cover costs associated with closing or restructuring a business.

"Many business owners would say that they'd lose hundreds of thousands, or millions, in revenue if, for instance, a key employee passed away in a car accident on their way to work.Lee speaks from first-hand experience. The fund's insurance requirement has twice allowed it to recoup money lent to small businesses whose founders died prematurely.

Sridhar Tayur, a professor of operations management at Carnegie Mellon University's Tepper School of Business, says venture capital investors often insist that businesses carry key man insurance on the founders of their portfolio companies. In addition to founders or owners, key people also frequently include top sales reps, doctors in medical offices, heads of research and executive directors of nonprofits, according to Zachary Taylor, a principal and exit planning specialist at Helm Financial.Premiums vary widely and depend on such factors as the age, gender and health of a key person and the amount of coverage provided under a policy.

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