Chapter 10 uses of life insurance

Two partners own equal shares in a business worth a total of $1,000,000. If they both commit to the purchase of a life insurance policy that will fund a Buy-Sell Agreement, which of the following is TRUE?

Each partner owns a $500,000 policy on their partner's life

When an individual is planning to protect his family with life insurance, one method of doing so is called needs analysis. What exactly does a needs analysis involve?

Establishes the needs of the individual and his dependents

What is considered a valid reason for a small business to insure the lives of its major shareholders?

Fund a buy-sell agreement

An architect firm would stand To lose a lot of money in the event of the death of his project manager. Which type of policy should the firm purchase on its own project manager?

Key person

In life insurance, the needs approach is used mostly to establish:

how much life insurance a client should apply for

And a key employee life insurance policy, the third-party owner can be all of the following except:

insured

Which type of plan allows an employer to give money to an employee for buying a life insurance policy and also permits the employee to select the beneficiary?

Split-dollar plan

The premiums paid by an employer for his employee's group life insurance are usually considered to be

tax-deductible to the employer

Which of these is NOT considered to be a cost connected with an individuals death?

Business expenses

Which of these is not a reason for purchasing life insurance on the life of a minor?

If both parents were to die, it would provide death benefits to the child

Which statement regarding third-party ownership of a life Insurance policy is true?

It is used extensively in estate-planning as well as business circumstances

K is an insured under a life insurance policy owned by a third party. Which of these statements is true?

K has no ownership rights

Which of these is NOT relevant when determining the amount a personal life insurance and needed?

Local unemployment rate

Which statement regarding a key employee life policy is not true?

The beneficiary is named by the key employee

Three law partners from a Cross-Purchase buy and sell agreement. This agreement is funded with individual life insurance. How many total life policies are needed for this agreement?

6

Which of these is not a reason for a business to buy key person life insurance?

A pension deficiency if the key employee dies

C is a key employee at ABC Incorporated. If a Key Employee life policy is purchased on her life, which of these statements would be true?

ABC is the policyowner, C is the insured, and ABC is the beneficiary

A Key Employee policy is taken out by Company X on its vice president. Ten years later, this employee leaves Company X and begins working for Company Y. If this individual were to die and the policy is still in force and unchanged, where would the death proceeds be directed?

Company X

Company Z has a Cross Purchase Buy-Sell Agreement in place among its three founding partners. If the agreement is funded with individual life insurance, what would it require?

Each partner must own a policy on the other partners

Which of these factors does NOT influence And applicant's need it for life insurance?

Self maintenance expenses