Life License Qualification Program (LLQP) Practice Exam

In a Key Employee policy, where would the death proceeds go if the employee leaves and later dies?

1. The employee's family

2. Company Y

3. Company X

4. The employee's estate

The correct answer is: Company X

In a Key Employee policy, the death proceeds are typically designated to the company that purchased the policy, which is often the employer who has a vested interest in the contributions of the key employee to the business. If the key employee were to leave the company and subsequently die, the proceeds from the policy would still go to the company that holds the policy, in this case referred to as Company X. This arrangement ensures that the company is compensated for the loss of a vital employee whose skills and leadership are instrumental for business operations. The rationale behind this is that the purpose of a Key Employee policy is to protect the business from financial losses that may arise due to the unexpected death of an important personnel member. The company uses these proceeds to cover costs associated with recruiting a replacement, loss of future earnings, or any potential impacts on business operations. While the employee may have had family or an estate, the policy is structured to benefit the employer rather than the employee’s personal beneficiaries, which emphasizes the business's reliance on the key employee for success.