Tennessee Insurance Practice Exam

In a Key Employee policy, if the insured vice president of Company X dies after leaving for Company Y, where do the death proceeds go?

1. Company Y

2. The employee's family

3. The state

4. Company X

The correct answer is: Company X

In a Key Employee policy, the death proceeds go to the employer who originally purchased the policy. In this case, since Company X is the owner and beneficiary of the policy taken out on the vice president, the proceeds would still be directed to Company X even after the insured left for Company Y. Key Employee insurance is designed to protect businesses from financial loss that might occur due to the death of a key individual whose contributions significantly impact the company's operations and profitability. The policyholder, typically the employer, pays the premiums and is named as the beneficiary, ensuring that the business receives the financial support needed to mitigate disruptions resulting from the loss of that key employee. The other options do not apply because once a company takes out a Key Employee policy, the benefits generally do not transfer with the employee to a new employer. The proceeds are meant to serve the interests of the original company and help them cope with the potential financial impact of losing an integral team member.