CARD Q034
A company wants funds to offset financial loss if a crucial employee dies. Which use of life insurance is most relevant?
- Funding a buy-sell agreement for an owner’s interest
- Providing group life benefits to the employee’s family
- Funding an executive bonus plan for the employee’s personal policy
- Key person insurance
Key person insurance
Key person coverage addresses the company’s loss from a key employee’s death. A buy-sell arrangement instead funds an ownership transfer.
Why each choice is right or wrong
A. Funding a buy-sell agreement for an owner’s interest
Incorrect. A buy-sell arrangement funds ownership transfer, not simply the loss of a key employee.
B. Providing group life benefits to the employee’s family
Incorrect. Family group benefits do not directly provide the company’s requested protection.
C. Funding an executive bonus plan for the employee’s personal policy
Incorrect. An executive bonus typically supports the executive’s personal coverage rather than the company’s key-person need.
D. Key person insurance
Correct. Key person coverage addresses the company’s loss from a key employee’s death. A buy-sell arrangement instead funds an ownership transfer.
Review the related terms
Use these lessons to revisit the concepts and try additional practice questions.