Business Insurance

deferred compensation

A nonqualified plan under which an employer promises to pay a portion of an employee's current compensation in a future year.

Section 457 Deferred Compensation Plan

Allows employees of state and local governments, as well as for employees of nonprofit organizations, the ability to defer compensation similar to a 401(k) or 403(b) plan. Plan contributions and earning are not included in gross income and grow on a tax-deferred basis until the funds become available upon retirement. An employee contributes through a deduction in income that is deposited into the retirement fund.

Partners in a business enter into a buy-sell agreement to purchase life insurance, which states that should one of them die prematurely, the other would be financially able to buy the interest of the deceased partner. What type of insurance policy may be used to fund this agreement?

Any form of life insurance. Any form of Life insurance may be used to fund a buy-sell agreement.

when an employer offers to give an employee a wage increase in the amount of the premium on a new life insurance policy, this is called?

Executive bonus

which of the following statements regarding deferred compensation funds is incorrect?

They are usually qualified plans.

elective

a plan which permits the employee to defer part of their salary or bonuses as a tax deferred savings

stock redemption plan

agreement under which a close corporation purchases a deceased stockholders interest

deferred compensation funding

any employer retirement, savings, or other deferred compensation plan that is not a qualified retirement plan.

Split-Dollar Insurance

arrangement where the employer and employee agree to purchase and fund life insurance on an employee

in addition funding plans

designed to pay an amount in addition to the employee's qualified retirement plan

deferred compensation funding falls into 2 major classes

in addition funding plans and elective

executive bonus (also known as IRS section 162 plan)

is an arrangement where the employer offers to give the employee a wage increase in the amount of the premium on a new life insurance policy on the employee. the employee owns the policy and therefore has all control. since the employer treated the premium payment as a bonus, that amount is tax deductible to the employer and income taxable to the employee. it is assumed that if the employee was not willing to accept these conditions, the employer would not provide the benefit.

which is incorrect concerning a section 457 deferred compensation plan?

it has a vesting requirement

Buy sell agreement (business continuation agreement)

legal contract that determines what will happen to a business in the event that the owner dies or becomes disabled

which of the following are true concerning the taxation of premiums in a key person life insurance policy?

premiums are not tax deductible as a business expense

key person insurance

protects against the loss of a key employee or key executive by making the business the beneficiary if a key person dies. The business is the owner, premium payer, and beneficiary.

when a closely held corporation enters into an agreement with its stockholder to insure each of them individually for the purpose of buying their stock should any of them die is called?

stock redemption plan

a corporation is the owner and beneficiary of the key life policy. the corporation collects the policy benefit then

the benefit is received tax free

all of the following are true about use of life insurance as an executive bonus except

the policy is owned by the company

which of the following statements regarding deferred compensation funds is incorrect?

theya re susually qualified plans

stock purchase method

used by privately owned corporations when each stockholder buys a policy on the others

cross purchase method

used in partnerships when each partner busy a policy on the other

stock redemption method

used when the corporation buys one policy on each shareholder

entity purchase method

used when the partnership buys the policies on the partners

which of the following is not an example of a business use of life insurance

workers compensation