What term refers to the insurance that covers the loss caused by the death or disability of an essential employee?

The term that describes insurance covering losses due to the death or disability of an essential employee is known as key person insurance. This type of insurance is designed to protect a business from the potential negative financial impact that could result from losing a vital employee, often referred to as a "key person." The coverage is crucial because key employees hold significant responsibilities and possess specialized knowledge or skills that are not easily replaced.

When a key employee dies or becomes disabled, the business may face financial struggles, including loss of revenue and the expenses associated with finding and training a replacement. Key person insurance provides the business with funds to mitigate these risks, ensuring continuity and stability during a challenging time.

Other options like buy-out insurance typically pertain to the purchase of an ownership interest in a business following the departure of a partner, partnership insurance is relevant for partnerships to protect against loss of a partner, and disability insurance generally covers individuals’ lost income due to their own disabilities rather than focusing specifically on essential employees within a business context. These options don't specifically address the financial implications for a business when a key employee is lost, which is why key person insurance is the most appropriate term in this scenario.