Taxes, Retirement, and other Insurance Concepts

A life insurance policy used to fund an agreement that contractually establishes the intent of someone to purchase a business upon the insured business owner's death is a

Buy-sell agreement. (Buy-Sell agreements are used to contractually establish the intent of someone else to purchase the business upon the insured's death, and to set a value (purchase price) on a business. Life insurance is used to fund the buy-sell agreement. Any type of life insurance may be purchased to provide the necessary funds for the agreement. Insurance can be used to either fully or partially fund the buy-sell agreement.)

What does "liquidity" refer to in a life insurance policy?

Cash values can be borrowed at any time. Liquidity in life insurance refers to availability of cash to the insured through cash values.

A key person insurance policy can pay for which of the following?

Costs of training a replacement. (A key person insurance policy will pay for costs of running the business and replacing the employee.)

A partnership buy-sell agreement in which each partner purchases insurance on the life of each of the other partners is called a

Cross purchase plan In a Cross-Purchase Plan each partner involved purchases insurance on the life of each of the other partners. With a cross-purchase plan, each partner is the owner, premium-payor, and beneficiary of the life insurance on the lives of the other partners. The amount of the life insurance is equal to each partner's share of the purchase price of the deceased partner's interest in the business.

All of the following are business uses of life insurance EXCEPT

Funding against company's general financial loss. Both life and health insurance can be used for a variety of purposes in a business setting, including the funding of business continuation agreements, compensating executives, and protecting the firm against financial loss resulting from the death or disability of key employees.

What is the main purpose of the Seven-pay Test?

It determines if the insurance policy is a MEC. The Seven-pay Test determines whether an insurance policy is "over-funded" or if it's a Modified Endowment Contract. In other words, the cumulative premiums paid during the first seven years of a policy must not exceed the total amount of net level premiums that would be required to pay the policy up using guaranteed mortality costs and interest.

A corporation is the owner and beneficiary of the key person life policy. If the corporation collects the policy benefit, then

The benefit is received tax free. Should a key person die, the benefit is treated as a reimbursement to the business for loss of services from that key person.

Who is the owner and who is the beneficiary on a Key Person Life Insurance policy?

The employer is the owner and beneficiary. With the key-person coverage, the business (the employer) is the applicant, owner, premium payer, and beneficiary.

In a life settlement contract, whom does the life settlement broker represent?

The owner. Life Settlement Broker is a person who, for compensation, solicits, negotiates, or offers to negotiate a life settlement contract. Life settlement brokers represent only the policyowners.

Which of the following is NOT true of life settlements?

The seller must be terminally ill With Life Settlements, unlike with viatical settlements, the seller does not need to be terminally ill. They usually involve life insurance policies with a face amount of $250,000 or more, "key-person" coverage, corporate owned policies, or policies representing excess coverage that is no longer needed, and could be sold for an amount greater than the current cash value.

which of the following is the best reason to purchase life insurance rather than annuities?

To create an estate With insurance, the death benefit creates an immediate estate should the insured die.

What is the name of the insured who enters into a viatical settlement?

Viator. Viator means the owner of a life insurance policy who enters into or seeks to enter into a viatical settlement contract.

Which of the following is NOT an example of a business use of Life Insurance?

workers compensation Workers Compensation is a benefit payable when a worker is injured by a work-related injury, regardless of fault or negligence. It is not considered a business use of insurance.

Who is a third-party owner?

A policyowner who is not the insured Third-party owner is a legal term used to identify an individual or entity that is not an insured under the contract, but that has a legally enforceable right under it.

All of the following are requirements of eligibility for Social Security disability income benefits EXCEPT

Being age 65. The term fully insured refers to someone who has earned 40 quarters of coverage (the equivalent of 10 years of work), and is therefore entitled to receive Social Security retirement, Medicare, and survivor benefits. The waiting, or elimination period for Social Security disability benefits is 5 months.