Chapter 8 - Uses of Life Insurance
Business Continuation Plan
plan to ensure business process can continue during emergency or disaster. -key person insurance -cross purchase agreement -stock redemption plan
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 payor, and beneficiary.
Human Life Value Approach
the present value of the family's share of the deceased breadwinner's future earnings. determines how much would be devoted to dependents
7. All of the following are examples of a Business Continuation Plan EXCEPT?
Deferred Compensation
Stock Redemption Plan
A type of buy and sell agreement If a corporation has an agreement with a shareholder, and that shareholder dies, the corporation will be able to repurchase the outstanding stock the shareholder owned
3. Craig purchased a life insurance policy for enabling his heirs to pay estate taxes. What is this called?
Estate Conservation
6. Which of these is a method of determining the level of funds required for ongoing support in the event of the breadwinners death?
Human Life Value
1. Which approach predicts a person's earning potential and determines how much of that amount would be devoted to dependents?
Human Life Value Approach
5. All of the following are considered appropriate uses of life insurance for business purposes EXCEPT
Protecting the business by covering entry level employees with life insurance
4. When calculating the amount of life insurance needed for an income earner, what has to be determined when using the Needs Approach?
The family's financial objectives if the income earner were to die or become disabled
Cross Purchase Agreement
a business buy-sell agreement for partnerships and corporations in which the surviving co-owners will be the purchasers of the business interest of a deceased owner
Needs Approach
a method of determining how much life insurance you need based on funds your family would require to maintain their lifestyle after your death
2. Which of these factors is NOT taken into account when determining an applicant's life insurance needs?
automobile
Estate Conservation
when individuals purchase life insurance to enable their heirs to pay estate taxes