Chapter Exam - Uses of Life Insurance
All of the following are considered appropriate uses of life insurance for business purposes EXCEPT - Attracting quality employees by offering a group life plan - Funding an entity buy-sell agreement - Protecting the business by covering key employees with life insurance - Protecting the business by covering entry level employees with life insurance
Covering entry level employees with life insurance to protect the business is not an appropriate business use
all of the following are examples of a Business Continuation Plan EXCEPT - Key person insurance - Cross-purchase agreement - Stock Redemption Plan - Deferred compensation
Deferred Compensation Deferred Compensation in NOT an example of Business Continuation Plan
When an individual is planning to protect his family with life insurance, one method of doing so is called needs analysis. What exactly does needs analysis involve? - Establishes the needs of the individual and his dependents - Takes into account the present value of future income earned by the breadwinner - places a dollar value on the life of the individual - establishes the investment risk level acceptable to the individual
Needs analysis is a method of life insurance planning which identifies the needs of an individual and the individual's dependents
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
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 factors is NOT taken into account when determining an applicant's life insurance needs? - Social Security - automobile - savings - pension
in the process of determining an applicant's life insurance needs, an insurance producer takes into account all of these factors EXCEPT an applicant's automobile
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? - One policy is owned and paid for by the company - Each partner must own a policy on the other partners - one policy is owned by the company and premiums are split equally among the partners - Each partner owns their own individual policy
In this situation, each partner must own a policy on the other partners
Which approach predicts a person's earning potential and determines how much of that amount would be devoted dependents? - Future value approach - Earnings approach - Needs approach - Human life value approach
The human life value approach predicts an individual's future earning potential and determines how much of that amount would be devoted to dependents.
Which of these is a method of determining the level of funds required for ongoing support in the event of the breadwinner's death? - Financial loss value - Human life value - Assessment value - Replacement value
The human life value calculator helps you assess the financial loss family would incur if you were to die today
Craig purchased a life insurance policy for enabling his heirs to pay estate taxes. What is this called? - Estate conservation - Liquidity maintenance - Survivor fund - Human value protection
When individuals purchase life insurance to enable their heirs to pay estate taxes, this is called estate conservation.
When calculating the amount of life insurance needed for an income earner, what has to be determined when using the Needs Approach? - The income earner's future projected income - the family's financial objectives if the income earner were to die or become disabled - the insurance company's financial rating - the income earner's credit score
When using the needs approach to determine the amount of life insurance needed for the income earner, it is necessary to determine the family's financial objectives in the event of the death or disability of the income earner.
