Key person insurance is best described as?

• A. It insures the lives of all employees in a company
• B. It is used to insure the lives of valuable employees
• C. It is a disability policy
• D. It pays dividends to shareholders

Answer: (B)

Key person insurance protects a business from financial loss when someone crucial to the company dies. It is a life insurance policy placed on the life of a key employee, with the business typically owning the policy and being the beneficiary. The funds from the death benefit help the business cover lost profits, locate and train a replacement, pay off debts, or handle other costs that arise from the key person’s absence. It’s not intended for all employees, not a disability policy, and not a means to pay dividends to shareholders. So, the best description is that it is used to insure the lives of valuable (key) employees who are critical to the business.