Texas Life Agent Practice Exam

In the case of a Key Employee Life policy, what is a Double Indemnity clause primarily designed for?

1. To cover accidental death

2. To increase death benefits

3. To pay dividends

4. To provide education benefits

The correct answer is: To cover accidental death

The Double Indemnity clause in a Key Employee Life policy is specifically designed to provide additional benefits in the event of an accidental death. This clause typically allows for the insurer to pay out twice the face amount of the policy if the insured individual dies as a result of an accident, rather than from natural causes or other reasons. The rationale behind this provision is to protect businesses from the financial impact of losing a key employee unexpectedly. The additional funds can help cover business disruption costs, recruitment expenses for a replacement, and provide the necessary cushion for the organization's financial stability. The focus on accidental death underscores the need for heightened financial protection in critical scenarios where the loss of a key employee would create significant challenges for the organization. This is particularly relevant for companies that rely heavily on specific individuals for their operational success.