New York Child Abuse Identification and Reporting Practice Exam

What type of insurance should a company purchase to insure the life of its CEO?

1. Life insurance policy

2. Key person insurance

3. Term insurance

4. Whole life insurance

The correct answer is: Key person insurance

The choice of key person insurance is appropriate when a company aims to insure the life of its CEO because this type of insurance is specifically designed to protect a business from the financial impact of losing a vital member of its team. The CEO often plays a critical role in the success of the company, and their unexpected absence can lead to significant financial loss and instability. Key person insurance provides the company with a death benefit that can be used to cover operational costs, recruit and train a replacement, or stabilize the company's finances during a difficult transition. This overarching protection aligns with the company's interest in securing its future and mitigating risks associated with the loss of an essential executive. While life insurance policies, term insurance, and whole life insurance can also cover an individual’s life, they do not specifically address the business's need to safeguard against the loss of a key executive and do not provide benefits specifically intended for business continuity in the face of such a loss. Hence, key person insurance stands out as the most appropriate option.