West Virginia State Life Insurance Practice Exam

What happens to the death proceeds of a Key Employee policy if the employee leaves for another job?

1. The proceeds go to the employee's new employer

2. The proceeds are forfeited

3. The proceeds go to Company X

4. The proceeds are paid to the employee's heirs

The correct answer is: The proceeds go to Company X

In the context of a Key Employee policy, when an employee who is covered under the policy leaves for another job, the death proceeds are designated to go to the company that originally took out the policy, in this case, Company X. Key Employee policies are life insurance policies where the employer is the owner and the beneficiary, and they are intended to protect the business against financial loss that may occur due to the unexpected death of a key employee. When the key employee exits the company, the insurance policy typically remains in place until the company decides to cancel it or transfer it to another employee if that is an option provided in the policy. This means that the benefits of the policy, including death proceeds, are kept within the organization to help cover the loss or disruption that might arise from the departure of a critical team member. The employer utilizes these proceeds to manage ongoing operational needs or to find a replacement for the key employee.