46. All of the following are reasons for a business organization to purchase key person life insurance EXCEPT
Answer: D
The increased pension liability resulting from the key person's death
One reason a business organization may not purchase key person life insurance is due to increased pension liability resulting from the key person's death, as this is not a primary concern addressed by such insurance policies.
A) the loss of leadership resulting from the key person's death
This option is a valid reason for purchasing key person life insurance, as the death of a key leader can significantly disrupt the organization’s operations and decision-making processes. The insurance can provide financial support to help manage this transition effectively.
B) the reduction of profits resulting from the key person's death
Purchasing key person life insurance is often justified by the potential reduction in profits that can occur when a vital employee passes away. The financial cushion provided by the insurance can help stabilize the business during a challenging period.
C) the loss of new business resulting from the key person's death
This is another legitimate reason for organizations to consider key person life insurance. The death of a key individual may hinder the ability to secure new contracts or clients, and insurance can help mitigate the financial impact of such losses.
D) the increased pension liability resulting from the key person's death
Increased pension liability does not directly relate to the primary functions of key person life insurance. This type of insurance is designed to protect against the loss of revenue and leadership, rather than addressing pension obligations, making this option incorrect in the context of the question.
Conclusion
The rationale for selecting option D is clear, as increased pension liability does not align with the primary motivations for purchasing key person life insurance. Options A, B, and C each represent valid concerns that businesses face in the event of a key person's death, emphasizing the protective nature of this insurance. Thus, D stands out as the exception among the reasons listed.