In a key-person life insurance arrangement, which party is typically the policyowner and the beneficiary?

Why A is correct

In a key-person policy, the employer owns the policy, pays the premiums, and is named the beneficiary. The insured is the key employee, whose death would create a financial loss for the business through lost production and replacement costs. Because the employer has an insurable interest based on economic loss, the arrangement is valid even though the employer is neither the insured nor a family member. The death proceeds are intended to help the company absorb the loss and fund a replacement search, and any cash value belongs to the employer as the owner of the contract.

Why the other options are wrong

• B) The employee is the insured, not the owner or beneficiary. The plan protects the employer from the employee's death, rather than providing a family benefit to the employee's household.
• C) The employee's spouse would be the beneficiary under a personal policy owned by the employee. In a key-person arrangement the employer controls the policy and receives the proceeds.
• D) A lender may be named a beneficiary under creditor insurance tied to a loan balance. In a key-person plan, the employer holds the policy and is the recipient of the proceeds.

Memory hook

Key person: employer owns, employer collects; the employee is the covered life.