What types of life insurance are normally used for key employee indemnification?

• A. Term, Whole, and Universal Life Insurance
• B. Universal Life Insurance
• C. Whole Life Insurance
• D. Term Life Insurance

Answer: (A)

Key employee indemnification is funded by life insurance on the key person, with the business as the beneficiary, to offset the financial impact of the employee’s death or loss of service. Any major form of life insurance can be used for this purpose, depending on the company’s goals and budget. Term life offers pure death protection at a lower cost for a defined period, which is helpful when the need is time-bound. Whole life provides permanent coverage with potential cash value, which can be useful for long-term needs or as an asset for the company. Universal life offers flexible premiums and potential cash value growth, blending lifetime coverage with adjustable funding.

Because indemnification goals can be met with term, whole, or universal life, the best choice is the one that includes all three forms. If you were limited to one form, you’d miss viable options the business might choose based on its finances and planning horizon.