Tennessee Insurance Practice Exam

If ABC Incorporated purchases a Key Employee life policy on key employee C, who holds ownership of the policy?

1. C is the policyowner

2. ABC is the beneficiary

3. ABC is the policyowner and beneficiary

4. The insurance company owns the policy

The correct answer is: ABC is the policyowner and beneficiary

When a company like ABC Incorporated purchases a Key Employee life policy on a key employee, such as C, the company typically holds both the ownership of the policy and is also the beneficiary. This arrangement allows the company to ensure that it can financially recover from the loss of a key employee's contributions to the business should something happen to that individual. Owning the policy means the company has the authority to make decisions regarding it, including premium payments, changes to the policy, and the option to surrender it for cash. As the beneficiary, the company stands to receive the life insurance proceeds upon the key employee's death, which is crucial for covering losses or expenses incurred due to that employee's absence. In this case, the incorrect options clarify that C, as the key employee, does not hold ownership of the policy, nor does the insurance company itself maintain ownership. This reinforces the idea that when a key employee life policy is taken out by a business, the business is invested in both the protection of the employee and the continuation of its operations.