What does "key person insurance" refer to?

What does "key person insurance" refer to?

• A. A policy taken out on an employee’s life who is not critical to business
• B. A life insurance policy taken out on a key employee whose loss would impact the business
• C. A short-term policy for executives
• D. A collective insurance policy for all employees

Answer: (B)

Key person insurance refers to a life insurance policy that is taken out on a key employee whose presence is crucial to the business. This kind of insurance is intended to protect the company from the financial loss that could occur if that employee were to pass away or become disabled. The loss of a key employee can significantly impact the success and operations of a business, especially if they hold critical knowledge, skills, or client relationships. In the event of the key person's death, the insurance coverage provides the business with financial support to help manage the transition, such as recruiting and training a replacement, or covering the loss of revenue while the business adjusts. This type of policy ensures that the business is financially secure even in the face of a critical loss. The other choices do not describe the primary purpose and function of key person insurance accurately.

Key person insurance refers to a life insurance policy that is taken out on a key employee whose presence is crucial to the business. This kind of insurance is intended to protect the company from the financial loss that could occur if that employee were to pass away or become disabled. The loss of a key employee can significantly impact the success and operations of a business, especially if they hold critical knowledge, skills, or client relationships.

In the event of the key person's death, the insurance coverage provides the business with financial support to help manage the transition, such as recruiting and training a replacement, or covering the loss of revenue while the business adjusts. This type of policy ensures that the business is financially secure even in the face of a critical loss.

The other choices do not describe the primary purpose and function of key person insurance accurately.