Chap 10 Uses of Life

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 own a $500,000 policy on their partner's life. The amount of the policy is equivalent to each partner's share of the business. When one partner dies, the other partner receives the death benefit from the life insurance on the deceased partner, which is then used to buy the deceased partner's ownership of the business.

An engineering firm that would suffer financially from the death of a project manager should purchase a:

Key Person Life Policy.

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

Split-dollar plan. A split-dollar plan is an arrangement where an employer and an employee share in the cost of purchasing a life insurance policy on the employee. The employee is also allowed to name the policy beneficiary.

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

Tax-deductible to the employer. The amount an employer pays for his employee's life insurance is typically deductible to the business.

Which statement regarding a Key Employee policy is NOT true?

The beneficiary is named by the key employee. The company names the beneficiary, not the employee.