Which of the following statements about controlling costs under Key Employee Policies is true?

The statement that it allows for the hiring of a replacement is the correct choice because Key Employee Policies are designed to provide financial support to a company in the event that a key employee is unable to perform their duties or leaves the company unexpectedly. This type of insurance helps cover the costs associated with hiring and training a replacement, ensuring that the company can maintain its operations and minimize any financial disruptions during the transition.

In essence, these policies provide a buffer that allows companies to manage the costs related to turnover of crucial personnel, thereby facilitating a smoother hiring process for replacements and helping to ensure business continuity.

Contextually, other options do not align with the purpose of Key Employee Policies. For example, while hiring costs may be incurred, Key Employee Policies are intended to help mitigate financial impacts rather than significantly increase hiring costs. Additionally, these policies are not designed to reduce total company profits; rather, they are structured to protect the company’s financial health in the wake of losing a key employee. The policies also do not limit coverage exclusively to top executives, as key employees can include any individual whose absence could negatively impact the company's operations.