Why do employers often purchase life insurance on key employees?

Employers frequently purchase life insurance on key employees primarily to protect the business financially in the event of the premature death of those employees. When a key employee passes away, their absence can create significant challenges for the organization, including the potential loss of revenue, disruption of relationships with clients and vendors, and the immediate need to find and train a replacement.

Having life insurance in place provides the necessary funds to cover the costs associated with this transition, such as recruiting and training a new employee or addressing any short-term financial impact caused by the loss. This financial cushion helps ensure that the business can continue operating smoothly despite the unexpected loss of a critical individual.

Other options are not the main reasons for purchasing life insurance on key employees. While the company may benefit from additional retirement benefits or cover ongoing operational costs, those are not direct motivations for acquiring life insurance. Similarly, protecting against business liability claims is unrelated to life insurance, which specifically addresses the financial implications of losing a key individual.