Massachusetts Life Producer Practice Exam

Employers often purchase life insurance on a key employee in order to?

1. Increase employee bonuses

2. Pay debts of the company

3. Settle estate taxes

4. Pay for finding and training a replacement if the employee dies prematurely

The correct answer is: Pay for finding and training a replacement if the employee dies prematurely

When employers purchase life insurance on a key employee, one of the primary reasons is to cover the costs associated with finding and training a replacement in the event of the employee's untimely death. Key employees are often critical to the operations and success of a business, and their sudden loss can create significant financial strain. The life insurance policy provides the company with necessary capital that can be used to mitigate these impacts, such as recruiting and onboarding a new hire who can take over the responsibilities left by the deceased employee. This financial protection helps ensure continuity in the business operations and safeguards against potential losses in productivity and revenue that could occur during the transition period. The funds from the life insurance payout can be critical in maintaining stability for the company during a challenging time, making it a strategic tool for business owners.