Question

ABC Corporation purchased a $2million life insurance policy on their Chief Financial Officer (CFO), who was a 20 percent stockholder in the corporation. Two years later the CFO resigned and sold his stock in the corporation. Three months later, the former CFO dies and ABC Corporation files a claim with the insurer for $2 million. Can ABC Corporation collect on the policy?

Answer 1

Typically the life insurance policy would have a clause wherein the contract of insurance gets terminated once the employee is no longer in the payrolls of the company. In this case, the CFO who is the employee whose life has been insured by the company leaves the company after two years and also ceases to be a shareholder.

In this case, the insurance coverage would also cease at this point of time and hence on his death the company cannot claim the insured value.