AD Banker Comprehensive Practice Exam

What type of disability income insurance pays a benefit to a business for the hiring of a replacement when an employee becomes disabled?

1. Buy-sell

2. Reducing term

3. Business overhead expense

4. Key employee

The correct answer is: Key employee

The type of disability income insurance that pays a benefit to a business for hiring a replacement when an employee becomes disabled is specifically designed to mitigate the financial impact of losing a key employee. This type of policy, often referred to as key employee insurance, provides the necessary funds to cover the costs associated with hiring a temporary replacement or to compensate for the loss of productivity that a business may experience when a crucial member of the team is unable to work due to a disability. Key employee insurance is essential for businesses that rely heavily on the skills and contributions of certain individuals, as the sudden absence of such employees can significantly disrupt operations and lead to financial losses. The coverage helps ensure that the business can quickly fill the gap created by the disabled worker, allowing it to maintain continuity and minimize economic impact. In contrast, other types of insurance mentioned in the options serve different purposes. For instance, buy-sell insurance involves agreements between business partners regarding the transfer of ownership in the event of a partner's disability or death, while reducing term insurance typically covers decreasing amounts over time, often used for debt repayment purposes. Business overhead expense insurance covers the business's ongoing expenses, like rent and utilities, during a period when the business owner is disabled, but it does not specifically address the