South Carolina Insurance Practice Exam

Key person Disability Insurance provides benefits to whom?

1. The employee directly

2. The employer

3. The employee’s beneficiaries

4. The insurance company

The correct answer is: The employer

Key person disability insurance is designed to protect a business in the event that a crucial employee, often a key executive or specialist, becomes disabled and can no longer perform their duties. In this scenario, the benefits of the insurance policy are paid out to the employer, not to the employee themselves. This is because the policy is taken out by the employer to safeguard against the financial losses that may arise from the absence of that key employee. The employer can use the benefits to cover costs such as hiring a temporary replacement or to offset the loss of income while the business deals with the impact of the key person's disability. This type of insurance is crucial for businesses that rely heavily on specific individuals whose expertise and abilities are integral to the company's success. Benefits are not directed towards the employee, their beneficiaries, or the insurance company itself in the context of receiving financial support. The focus is on ensuring that the employer can maintain operational stability despite the unexpected absence of a key person.