Solid continuity and succession planning are the foundation of a prosperous advisory business, and “key person” insurance can help.

Insurance can be part of a comprehensive approach to protecting against the professional disruption caused by the death or illness of indispensable firm members.

Life and disability insurance can be parts of buy/sell agreements among firm owners so that policy benefits can be used to purchase or pass on stock or otherwise address costs associated with contingency planning.

In “key person” policies, a firm itself becomes the beneficiary upon the extended illness or death of a valued member.

“Key person insurance is really becoming a hot topic,” says Kimberly Muldoon, a senior benefits consultant at Starkweather & Shepley Insurance Brokerage Inc. in East Providence, R.I.

Many advisories, especially smaller ones, depend on a handful of people or sometimes just one person. If something were to happen to those key people, the business could be in trouble.

The money from a key person policy can help cover revenue and be used to recruit and train new employees.

Clients are increasingly concerned about planning for business protection against long-term illness, Muldoon says.

Determining whether key person insurance, generally sold as a term policy, makes sense depends on the particulars of a given advisory firm, especially its size, Muldoon says.

There are lots of questions to ask about what stage of development the business is in: a growth phase, a mature phase “or is it just one guy on his own?” she says.

A firm’s book of business and outlook, especially in connection with succession issues, all play a part as well.

And the cost will also be a factor, but “once planners start to price it out, they’ll realize it’s not really all that expensive,” Muldoon says.

The approach has benefits for both contingency and succession plans, which is why Champaign, Ill.-based advisors Karen Folk and Jacob Kuebler of Bluestem Financial Advisors LLC took out insurance policies, each naming the other as beneficiary.

Folk brought on the younger Kuebler as a half-partner in 2011, and the two are in a multi-year transition period during which Folk will retire and Kuebler will purchase the remainder of the business.

It was absolutely necessary to have the key person insurance protection in place, the partners felt, because if something were to happen to either one, the remaining partner couldn’t properly serve all their clients alone.

That would have been an especially burdensome risk to face during the transition period, which is now in its final year.

If the worst happens, the money from the policy could be used to bring on more staff or to buy out the shares of the surviving partner.

“It’s definitely something we thought through,” Kuebler says.

“We decided that the insurance would be a good way to make sure the succession plan would work but also provide some continuity if something were to happen,” he says. “That way the firm would have a little bit of a buffer to make it through that transition.”

Paul Hechinger is a New York-based freelance writer.

This story is part of a 30-day series on how to prosper as an advisor.