Which of the following best describes the purpose of key person disability coverage?

• A. To replace the insured's life value
• B. To fund additional hires
• C. To provide retirement income to the owner
• D. To protect the business against the financial impact of losing a key person

Answer: (D)

Key person disability coverage is designed to shield a business from the financial impact when a critical employee becomes disabled and can no longer perform essential duties. The business owns the policy on the key person, and if disability occurs, the benefit paid to the business helps cover lost income, extra payroll, training or recruiting a replacement, debt service, and other ongoing costs to keep operations running. It’s about sustaining the business’s cash flow and profitability during the period of disability, not about replacing a person’s life value, funding personal retirement, or simply adding new hires as the primary purpose.