Chapter 10 Use of Life Insurance

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

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

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 $1,000,000 policy on their own life - Each partner owns a $1,000,000 policy on their partner's life - Each partner owns a $500,000 policy on their own life - Each partner owns a $500,000 policy on their partner's life

"Each partner owns 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.

Which of these is NOT relevant when determining the amount of personal life insurance needed? -Existing life insurance coverage -Local unemployment rate -Household income -Household debt

-Local unemployment rate

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

How much life insurance a client should apply for