Life License Qualification Program (LLQP) Practice Exam

Which statement about a Key Employee Life policy is NOT true?

1. The application must be signed by the key employee

2. Its purpose is to prevent financial loss from the death of a key employee

3. The beneficiary is named by the key employee

4. The company owns and pays for the policy

The correct answer is: The beneficiary is named by the key employee

In the context of Key Employee Life Insurance policies, it is important to understand the role of the key employee and the company. The primary purpose of such a policy is to protect the business from the financial impact that could result from the untimely death of a vital member of the executive team or other key roles within the organization. The company takes out the policy, pays the premiums, and receives the death benefit if the key employee passes away. Regarding the beneficiary, it is the employer, or the company, that owns the life insurance policy and typically designates itself as the beneficiary. This ensures that the proceeds from the policy can be used to cover potential losses, pay off debts, hire a replacement, or invest in the business during the transition period after the key employee's death. By stating that the beneficiary is named by the key employee, the incorrect assumption is made that the employee has control over who benefits from the policy, which is not the case. The ownership and beneficiary rights belong to the company, reinforcing the policy’s purpose of safeguarding the business against financial strain due to the loss of a critical team member. Thus, the statement regarding the key employee naming the beneficiary does not align with the standard practices of Key Employee Life policies.