Chapter 10

Which statement is true regarding buy-sell taxation? 1. Premiums are deductible, the death benefit is taxable. 2. Premiums are deductible, the death benefit is not taxable. 3. Premiums are not deductible, the death benefit is taxable. 4. Premiums are not deductible, the death benefit is not taxable.

4. Premiums are not deductible, the death benefit is not taxable.

A Key-Employee life insurance plan will provide coverage for all of the following, EXCEPT? 1. Owner of the business 2. Manager of the sales department 3. Director of a corporation 4. Officer of a firm

1. Owner of the business

Which of the following policies will assist a business in paying expenses and other necessary bills should a manager or director die? 1. A buy-sell agreement 2. Key-employee insurance 3. Split dollar plan 4. A buy-out policy

2. Key-employee insurance

If whole life insurance is utilized to support a key person life insurance arrangement, which of the following is allowed to borrow against the policy's cash value? 1. The covered employee 2. The employer 3. The spouse of the key-employee 4. The board of directors

2. The employer

What party possesses all ownership rights in a key-employee policy? 1. The covered employee 2. The employer 3. The spouse of the key-employee 4. The board of directors

2. The employer

Which of the following best describes the purpose of key-employee life insurance plans? 1. To provide final expenses for the key person 2. To provide readjustment income for the family of the deceased key person 3. To provide funds to locate and train a new key person 4. To provide retirement income to the firm's partners

3. To provide funds to locate and train a new key person

Who is the beneficiary of a key-employees policy? 1. The estate of the covered employee 2. The employer 3. The spouse of the key-employee 4. The board of directors

2. The employer

A business possesses a legitimate insurable interest in the life of a key employee. What party may change the primary beneficiary under a key-employee life insurance plan? 1. The insured 2. The employee 3. The contingent beneficiary 4. The employer

4. The employer

The primary purpose of a business using a buy-sell agreement is to: 1. Permit the surviving partners or stockholders to maintain control of the business. 2. Allow for the transfer of assets to a named beneficiary. 3. Provide a mechanism to ensure the assignment of liability to the board of directors. 4. Create a split dollar arrangement.

1. Permit the surviving partners or stockholders to maintain control of the business.

Key-person insurance is an example of third party ownership. Which of the following statements regarding key-person insurance is NOT true? 1. The policy's death proceeds received by the business are not taxable 2. Key-person life insurance indemnifies a business for financial loss caused by the death of a key employee or key executive 3. The business may borrow from the cash value of a permanent key-person life insurance policy 4. Premiums for a key-person life insurance policy are a tax-deductible expense to the business

4. Premiums for a key-person life insurance policy are a tax-deductible expense to the business