Why do employers typically purchase life insurance on key employees?

Employers often purchase life insurance on key employees primarily to mitigate the financial impact that would result if those employees were to pass away unexpectedly. Key employees typically refer to individuals whose skills, knowledge, or leadership are critical to the success of the company.

When a key employee passes away, the company can face significant challenges, including the cost of recruiting and training a replacement, which can be both time-consuming and expensive. The life insurance policy provides the necessary funds that can help the company cover these costs, ensuring that operations continue smoothly without severe interruptions. This strategy allows the company to minimize the potential financial strain and maintain stability during a difficult transition period.

The other options explore benefits, operational costs, or retirement savings, but they do not directly address the primary concern of protecting the company’s financial interests related to the loss of crucial personnel, which underscores the reasoning behind purchasing life insurance for key employees.