A policy designed to compensate a company for financial losses incurred if a key employee dies or becomes disabled.
A prerequisite is that the company must prove an insurable interest in the key person.
Why D is Correct
Insurable interest ensures that the company has a legitimate financial dependency on the key person, a requirement for taking out such a policy.
Other Options Analyzed
A. Ever-increasing premiums: Not a feature specific to key person policies.
B. Moving to a competitor: Irrelevant; this is not an insurable risk.
C. Undefined sum: Key person policies require a specific sum based on financial calculations.
ICWIM Textbook, Chapter on Business Insurance: Emphasizes insurable interest in key person policies.
Insurance Industry Standards: Insurable interest is a fundamental requirement.
References
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