What is key man insurance designed to protect?

Key man insurance is specifically designed to protect a business from the financial losses that may occur due to the untimely death or incapacitation of a key employee, typically someone whose unique skills, knowledge, or leadership is critical to the company’s operations and success. This type of insurance helps the company recover from potential disruptions caused by the loss of that individual by providing funds to cover hiring costs for a replacement, loss of revenue during the transition, and even covering debts or obligations that the key employee would have otherwise directly managed.

In contrast, the other choices do not relate directly to the purpose of key man insurance. For example, protecting against lawsuits pertains to liability insurance rather than the specific financial impact of losing a key employee. Health insurance covers medical expenses for employees but does not relate to the life or death of key individuals within the firm. Finally, the accuracy and safety of financial records fall under information security and general best practices rather than insurance aimed at compensating for the loss of a key human resource.