Life Insurance✓ Verified · outline & fact-checked · Sep 2026Difficulty 2/5
A corporation promises to pay a key executive retirement benefits, with the executive's family to receive a payment if the executive dies before retirement. Which arrangement is the standard way to fund this deferred compensation obligation?
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Answer & full 3-part explanation (select an option above, or peek)
Why A is correct
Deferred compensation plans are commonly funded with corporate-owned life insurance: the employer owns and is beneficiary of a policy on the executive's life. If the executive dies before retirement, the insurer pays the death benefit to the corporation, giving the employer funds to satisfy the deferred compensation promise to the family. This is one of the business uses of life insurance under objective LIFE-II.A.5, alongside key person and buy-sell coverage.
Why the other options are wrong
- B) Life insurance is bought on the life of a person, not on a corporation's own existence; the executive is the insured, not the beneficiary.
- C) An annuity provides lifetime income to the executive but does not fund the employer's obligation to pay survivors if the executive dies early.
- D) A group life plan for all employees is a benefit program, not a targeted funding vehicle for one executive's deferred compensation.
Memory hook
Corporate-owned life on the executive funds the deferred-comp promise. Employer owns, employer collects, employer pays.