Disability Income✓ Verified · outline & fact-checked · Sep 2026Difficulty 1/5
A key person disability income policy is designed to:
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Answer & full 3-part explanation (select an option above, or peek)
Why A is correct
A key person (key employee) disability policy is owned by the business and pays benefits to the business when a key individual becomes totally disabled. The proceeds compensate the business for lost profits, the cost of hiring and training a replacement, and the disruption caused by losing a contributor whose expertise and customer relationships are essential. It is one of the main business uses of disability income insurance, alongside business overhead expense coverage and disability buy-out funding for ownership transitions.
Why the other options are wrong
- B) Medical expenses are handled by health insurance; disability income insurance replaces lost earning capacity.
- C) Retirement income is a life insurance and annuity function, not the purpose of key person disability coverage.
- D) Death benefits for the family are the role of life insurance; key person disability protects the business while the person is alive but disabled.
Memory hook
Key person DI = the business's safety net when its star player is sidelined. Benefits go to the business.