PSI Ohio Insurance Practice Exam

A company decides to purchase Key Employee Life Insurance for its vice president of operations. Which of the following statements is NOT correct?

1. The company names the beneficiary

2. The insurance covers the vice president’s life

3. The employee names the beneficiary

4. The policy provides benefits to the company in case of loss

The correct answer is: The employee names the beneficiary

The statement indicating that the employee names the beneficiary is not correct in the context of Key Employee Life Insurance. In this type of policy, the company typically is the owner of the policy, and as such, it retains the right to name the beneficiary. This beneficiary is usually the company itself, which would receive the death benefit in the event that the key employee passes away. The purpose of Key Employee Life Insurance is to protect the company against the financial impact of losing a key individual crucial to its operations. The life insurance policy covers the life of the key employee, in this case, the vice president of operations. Therefore, the company stands to benefit directly from the insurance, receiving the payout which can help cover lost revenue, recruit a replacement, and maintain stability. Understanding this structure is crucial because it emphasizes that the intention of the policy is to safeguard the company's interests rather than provide a personal benefit to the employee or their family.