Final answer:
Key person life insurance primarily serves to protect the business entity from financial losses due to the death or incapacity of a key member of the company. It ensures business continuity and eases the financial burden that might arise from hiring a replacement or dealing with the operational impact.
Step-by-step explanation:
The primary purpose of key person life insurance is to protect b) The business entity. This type of insurance is a policy taken out by a business to compensate for financial losses that could arise from the death or extended incapacity of an important member of the business, referred to as the 'key person.' The loss of a key person can have a significant impact on the company’s operations and profitability. Therefore, the insurance helps ensure that the business can continue operations without extreme financial strain during such an event.
While life insurance typically serves to protect the insured individual's family in case of their death by providing financial support, key person life insurance differs in its focus on the continuity of business operations. It is vital in providing a financial safety net which allows for the arrangement of a suitable successor, pay off debts, or even cover the costs of closing the business if necessary. The payout from this kind of policy is intended to secure the company’s financial position, not to cover personal financial needs or debts of the deceased which would be covered by personal life insurance policies.