FEW businesses would run the risk of failing to insure their premises, machinery or vehicles. Yet many never consider protecting their most important asset - their people.

The consequences to a business of its top salesperson falling seriously ill, for example, is higher than most people think and is certainly greater than a van being written-off.

With his or her departure go their contacts, knowledge and expertise. This can have a direct and immediate impact on the company by affecting income, reputation for reliability, client relationships and loss of business to competitors.

Recruiting and training someone to replace a key figure can be costly and time consuming. Meanwhile, the business could be losing valuable contracts and suffering financial repercussions.

In small-to-medium sized businesses in particular, some people really are indispensable.

It is important, therefore, that all companies consider insuring their key people, such as directors, production managers and specialists, against injury, illness, and even death.

The level of cover will depend on the employee, the estimated cost of recruiting and training a replacement, and the size of the key person's salary and benefits package.

Policies will pay out a lump sum to meet the loss and to help cashflow immediately the key person is unable to work.

The same key person policy assigned differently will also offer shareholder protection in the event that a partner dies, a policy that can be replicated for however many directors there are in the business.

In such cases, the spouse or children of the deceased are likely to inherit their shares and the owners may not find the involvement of their late partner's relatives acceptable, or the heirs may prefer the value of the shares in cash.

It is normal for business partners to have a shareholder agreement, which can be drafted to include a clause that will allow for shares to be passed automatically or to be sold to the surviving shareholders.

In instances where the survivors have to buy the shares from the deceased's family again, money will have to be found.

Some relatively straightforward advance planning will ensure you have the right protection in place if the worst happens.

* Stewart Thompson is an independent financial advisor with Blackett Hart & Pratt in Darlington. For more information, contact him on (01325) 466794.