What is the purpose of key person insurance?

What is the purpose of key person insurance?

• A. To provide benefits to beneficiaries after a policyholder's death.
• B. To ensure business continuity in the event of a key employee's death or incapacity.
• C. To cover losses in employee health insurance claims.
• D. To fund employee retirement plans.

Answer: (B)

Key person insurance is specifically designed to protect a business from the financial impact of losing a crucial employee, often referred to as a "key person." This type of policy provides the business with a death benefit that can be used to cover various costs, including operational expenses, recruiting and training a replacement, and stabilizing the business during a difficult transition. The main goal is to ensure business continuity in the face of a key employee's death or incapacity. This insurance gives businesses the necessary funds to mitigate any potential losses or disruptions while they adapt to the sudden change in personnel. It recognizes that certain individuals within a company hold unique skills, relationships, or knowledge critical to the organization's success, and their absence could lead to significant financial strain. The other options listed do not align with the primary function of key person insurance. Other types of insurance or benefits serve those purposes, such as providing survivor benefits, health insurance claims, or retirement funding, but they do not specifically address the unique role of a key person within a business context.

Key person insurance is specifically designed to protect a business from the financial impact of losing a crucial employee, often referred to as a "key person." This type of policy provides the business with a death benefit that can be used to cover various costs, including operational expenses, recruiting and training a replacement, and stabilizing the business during a difficult transition.

The main goal is to ensure business continuity in the face of a key employee's death or incapacity. This insurance gives businesses the necessary funds to mitigate any potential losses or disruptions while they adapt to the sudden change in personnel. It recognizes that certain individuals within a company hold unique skills, relationships, or knowledge critical to the organization's success, and their absence could lead to significant financial strain.

The other options listed do not align with the primary function of key person insurance. Other types of insurance or benefits serve those purposes, such as providing survivor benefits, health insurance claims, or retirement funding, but they do not specifically address the unique role of a key person within a business context.