Ch.6

A partnership involving four equal partners is valued at $1,800,000. Under a Buy-Sell Agreement (Cross Purchase Plan), the amount of the policy on the life of each partner would be:

$150,000 **Each partner's ownership share equals $450,000, thus each partner would own a $150,000 policy on the life of each of the other three partners under a Cross Purchase Plan (3 x $150,000 = $450,000). There would be a total of 12 (4 x 3) policies (12 x $150,000 each = $1,800,000).

Group Life Insurance is usually written as:

Annual Renewable Term **Group Insurance is usually written as annual renewable term so that, based on a number of factors, the insurer may change the rate or the employer may change the plan.

The Social Security Survivor Benefit is based on the Primary Insurance Amount of the:

Deceased

When an underwriter evaluates the risks presented with a particular group life application, which of the following is considered the most important?

Group size, turnover, average age and purpose of the group **The cost of a typical group plan is a function of a number of variables, most notably average age and size of the group, industrial classification, financial stability of the sponsor, and claims experience if the group is of sufficient size.

In those instances in which the death of a valued employee could cause financial hardship for a company, the company might acquire additional funds through which type of coverage?

Key Person **The business would likely purchase a Key Person (Key Employee) Policy on the life of the valued employee to offset the expenses and financial losses due to the death of that employee.

A key person is typically all of the following, except: A)Respected by customers, creditors, suppliers, or vendors B) Not directly involved in sales, production, or service C) Part of the management team D) More highly paid

Not directly involved in sales, production, or service **Key persons are employees whose contributions have a significant impact on the revenue and profitability of the company, especially in small businesses. They are typically: part of the management team, more highly paid, respected by customers, creditors, suppliers, and vendors, and have direct responsibilities for sales, production, or service.

To help protect against experiencing immediate claims, group plans have a(n) _______ period set up by the group sponsor.

Probationary **A probationary period is set up to help reduce the chance of facing immediate claims.

All of the following are generally the main business uses of life insurance, except: A) To provide funds for the deceased's heirs B) To cover the unexpected death of a business partner C) To provide funds for the continuation of the business D) To cover the unexpected death of a key employee

To provide funds for the deceased's heirs **Business uses of insurance often mirror individual needs - to cover the unexpected death of business partners, executives, and key employees by providing funds for the continuation of the business, not for the heirs of the decedent.

When is an entity buy-sell agreement plan used?

When the entity buys life insurance on each of the owners **Under an entity plan, a business entity enters into an agreement in which it is obligated to purchase the deceased's owner's interest. The entity typically buys life insurance policies on each of the owners and then would name itself as the beneficiary of each policy.

To be fully insured for Social Security, generally a person must have worked and paid into the Social Security system for a minimum of ______ years.

10 **To be fully insured for Social Security, the requirement is to accumulate 40 credits or 10 years of work paying social security taxes. A maximum of four credits may be earned in one calendar year of employment.

XYZ Corporation has 59 employees. The company decides to purchase a group life policy and will pay the total premium. What percentage of employees must participate under this arrangement?

100% **The question describes a Noncontributory Plan as the employer (XYZ Corporation) is paying the entire premium, thus 100% participation (all 59 employees) is required.

Social Security Benefits provided are:

Retirement, Death, and Survivor **The Social Security System provides Retirement, Death, and Survivor benefits.

Which of the following is the least important when it comes to determining the cost of the group life insurance plan?

The health of each member of the group **Since evidence of insurability is not usually required, the health of each member of the group is not used when determining premiums of the group.

What is the most important thing a buy-sell agreement establishes in the agreement?

The price of the business **The buy-sell agreement establishes a price for the business so a proper amount of life insurance can be acquired to fund the acquisition.

Group life insurance is a contract between what parties?

The sponsor and the insurer **Only the plan sponsor receives a policy, the Master Policy from the insurer, which are the two parties to the contract.