All of the following are considered appropriate uses of life insurance for business purposes EXCEPT

• A. Buy-sell agreements
• B. Key person insurance
• C. Protecting the business by covering entry level employees with life insurance
• D. Funding employee benefit plans

Answer: (C)

The main idea here is how life insurance is used as a business risk management tool. It’s about planning for financial impact when a person whose death would disrupt the business occurs, or using the policy to support business arrangements.

Buy-sell agreements are funded with life insurance to ensure there’s money available to buy out a deceased owner’s share, keeping the business continuous. Key person insurance protects the company from the financial hit that could come if a critical employee dies, helping cover lost income or costs while the business adjusts. Funding employee benefit plans uses life insurance to fund group benefits or other plan costs, aligning a life policy with employee compensation and retention strategies.

Covering entry-level employees with life insurance, while it could be part of an employee benefit program, does not tie directly to a business continuity or risk-management objective. It’s not a mechanism to preserve ownership, protect key operations, or fund a specific business plan, so it isn’t considered a proper business-use purpose in this context.