Louisiana Contractors License Practice Exam

What does Key Man Life Insurance protect?

1. The lives of all employees

2. Financial loss in the event of a key individual's death

3. Only senior management lives

4. Long-term disability

The correct answer is: Financial loss in the event of a key individual's death

Key Man Life Insurance is designed to protect a business from financial loss that could occur due to the death of a key individual, typically someone whose skills, knowledge, or leadership are critical to the organization’s success. This insurance serves as a financial safety net, providing the funds necessary to help the business continue operations in the wake of such a loss, cover expenses related to recruitment and training of a replacement, and manage the potential negative impact on the company’s overall performance and profitability. Choosing this type of insurance underscores the importance of key individuals in a company's operations and strategic direction. It is particularly relevant for small to medium enterprises where the departure of a key player might significantly disrupt the business. The policy can be taken out by the business itself, naming the company as the beneficiary upon the key person's passing. This allows the business to mitigate risks associated with losing someone essential to its success, whereas other options would not provide the same target coverage that the specific financial loss stemming from the death of a key employee entails.