South Carolina Life Insurance Practice Exam

In Key Person Life Insurance, who is typically the owner and beneficiary?

1. The employee

2. The employer

3. The spouse

4. The business partner

The correct answer is: The employer

In Key Person Life Insurance, the employer is typically both the owner and the beneficiary of the policy. This type of insurance is designed to protect a business from the financial impact that could result from the death or disability of a key employee—someone whose skills and contributions are vital to the company's success. When the employer owns the policy, they have the authority to make decisions regarding it, such as premium payments and any policy changes. By being the beneficiary, the employer can collect the death benefit in the event the insured key person passes away. This payout can help the business cover costs associated with loss, such as recruitment and training of a replacement, or addressing any operational disruptions caused by the loss of the key individual. In contrast, while the employee might be the one insured by the policy, they are not the owner, which is essential for control and decision-making regarding the insurance. Other parties like a spouse or business partner will not typically have ownership or beneficiary status in this context, as the focus of Key Person Life Insurance is to safeguard the organization rather than personal relationships.