Which statement best describes a common business use of life insurance?

• A. Funding entry-level employee salaries
• B. Providing life insurance coverage to all customers
• C. Replacing all retirement plans
• D. Funding key person risk, buy-sell agreements, and executive benefits

Answer: (D)

Life insurance is a practical tool for business planning because it provides immediate liquidity and protects the business from disruptions caused by the death of important people or owners. The best answer describes three common uses: protecting key persons, funding buy-sell agreements, and supporting executive benefits.

Protecting key person risk means the business owns a policy on a valuable employee or partner. If that person dies, the death benefit helps cover lost profits, recruitment, and training costs, making it easier to maintain continuity and fund a transition. Funding buy-sell agreements uses life insurance to provide the funds needed to buy out a deceased owner’s share, keeping ownership stable and preventing the business or remaining owners from being forced into unfavorable arrangements. Executive benefits use life insurance to fund retirement income or supplemental benefits for leaders, aligning compensation with long-term goals and providing a tax-advantaged means to reward and retain key personnel.

The other options don’t fit typical business planning needs. Providing life insurance coverage to all customers isn’t a standard business strategy and would create unnecessary liability. Replacing all retirement plans with life insurance isn’t practical or compliant with how retirement planning and employee benefit programs are structured. Funding entry-level salaries isn’t a function of life insurance planning.