New Jersey Life and Health State Practice Exam

Which of the following is NOT an appropriate use of life insurance for business purposes?

1. Protecting key employees

2. Covering business owners

3. Providing for the business during ownership transfers

4. Covering entry level employees

The correct answer is: Covering entry level employees

Life insurance can serve various important functions in a business context, such as protecting key employees, ensuring that business obligations are met in the event of an owner's death, or facilitating smooth ownership transfers through financial support. These applications make sense as they aim to mitigate potential financial losses that could result from the death of someone critical to the company's operations or ownership structure. In contrast, using life insurance to cover entry-level employees is generally not considered a suitable application for business purposes. Entry-level employees typically do not hold the same level of impact or responsibility that would make their absence critically detrimental to the company's viability. The cost associated with insuring those in lower-impact positions may outweigh the potential benefit to the business if they were to pass away. Therefore, while every employee is valuable, life insurance in a business context is more appropriately applied to roles that are pivotal to the organization's success and continuity.