Employers often purchase life insurance on a key employee in order to:

• A. Increase the employee's annual salary
• B. Provide retirement benefits to all employees
• C. Protect the company financially in the event of the employee's death
• D. Reduce the company's tax liability on payroll

Answer: (C)

Verified step by step guidance

1. Understand the concept of 'key employee insurance': This type of insurance is purchased by employers to protect the company financially in case a key employee passes away. The key employee is someone whose skills, knowledge, or contributions are critical to the company's success.
2. Analyze the options provided in the problem: Evaluate each option to determine its relevance to the purpose of key employee insurance.
3. Option 1: 'Increase the employee's annual salary' - This is unrelated to the purpose of key employee insurance, as the insurance is not intended to directly benefit the employee's salary.
4. Option 2: 'Provide retirement benefits to all employees' - This is also unrelated, as key employee insurance is not designed to provide retirement benefits.
5. Option 3: 'Protect the company financially in the event of the employee's death' - This aligns with the purpose of key employee insurance, as it ensures the company can recover financially from the loss of a critical employee.