PSI Ohio Insurance Practice Exam

What is a primary objective of key employee life insurance?

1. To provide income for the employee

2. To secure financing for the business

3. To replace lost income for beneficiaries

4. To cover operational losses from employee absence

The correct answer is: To cover operational losses from employee absence

The primary objective of key employee life insurance is to cover operational losses from employee absence. This type of insurance is designed to protect a business in the event of the untimely death of a key employee whose skills, knowledge, or leadership are crucial to the organization's success. When a key employee dies, a business may face various challenges, including loss of productivity, disruption in operations, and potential financial instability. The insurance payout can be used to cover the costs associated with finding and training a replacement or to help maintain cash flow while the business recovers from this significant loss. By providing financial support in such challenging times, key employee life insurance helps ensure the continuity of the business and mitigates risks associated with the loss of critical personnel. This objective emphasizes the policy's role as a strategic tool for business sustainability rather than a direct benefit for the employee or their family. While the other options touch on important aspects of insurance and employee benefits, they do not capture the specific purpose of key employee life insurance in relation to business operations and continuity planning.