Washington Life Producer Practice Exam

What type of insurance is typically used to ensure a business’s continuation after the loss of a key employee?

1. General liability insurance

2. Property insurance

3. Key person insurance

4. Commercial auto insurance

The correct answer is: Key person insurance

Key person insurance refers to a type of life insurance policy that a business takes out on the life of an essential employee, often a top executive or key specialist, whose loss could significantly impact the company's operations and financial stability. The purpose of this insurance is to provide financial support to the business in the event of that employee's death, helping to cover costs associated with their absence and ensuring the business can maintain its continuity during a challenging transition period. This may include covering lost revenue, hiring a replacement, or settling debts. In contrast, general liability insurance protects businesses from claims of injury or property damage, property insurance covers physical assets from risks such as fire or theft, and commercial auto insurance provides coverage for vehicles owned or used by a business. These types of insurance do not specifically address the risks associated with losing key employees, which is why key person insurance is the most appropriate choice for ensuring a business can survive and flourish after such a loss.