Xcel solutions chapter 10 - Uses of Life Insurance

Three law partners form a Cross-Purchase Buy and Sell agreement. This agreement is funded with individual life insurance. How many total life policies are needed for this agreement? . 12 . 6 . 3 . 1

. 6

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

. Establishes the needs of the individual and his dependents

In life insurance, the needs approach is used mostly to establish: . which type of life insurance a client should apply for . how much life insurance a client should apply for . which company a client should use when applying for life insurance . what the maximum amount the client can spend on life insurance

. how much life insurance a client should apply for

Which of these is NOT a reason for a business to buy key person life insurance? • The reduction in sales as a direct result from death of the key employee • A void in leadership if the key person were to die • The loss of company revenues while a replacement is being sought • A pension deficiency if the key employee dies

• A pension deficiency if the key employee dies

C is a key employee at ABC Incorporated. If a Key Employee life policy is purchased on her life, which of these statements would be true? • C is the policyowner, the insured, and the beneficiary • ABC is the policyowner, C is the insured, and ABC is the beneficiary • C is the policyowner and the insured, and ABC is the beneficiary • ABC is the policyowner, C is the insured, and her husband is the beneficiary

• ABC is the policyowner, C is the insured, and ABC is the beneficiary

Which of these is NOT considered to be a cost connected with an individual's death? • Funeral expense • Tax liability • Business expenses • Probate costs

• Business expenses

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? • The employee's family • Company Y • Company X • The employee's estate

• Company X

Company Z has a Cross Purchase Buy-Sell Agreement in place among its three founding partners. I 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

• Each partner must own a policy on the other partners

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

What is considered a valid reason for small businesses to insure the lives of its major shareholders? • To provide an income for the surviving dependents • Reduce the company's tax liability • To pay for final expenses • Fund a buy-sell agreement

• Fund a buy-sell agreement

Which of these is NOT a reason for purchasing life insurance on the life of a minor? • If both parents were to die, it would provide death benefits to the child • Provides funds for final expenses if the child were to die • Provides living benefits for the child's college education • Provides child with insurance now, in case the child becomes uninsurable later

• If both parents were to die, it would provide death benefits to the child

In a Key Employee life insurance policy, the third-party owner can be all of the following, EXCEPT: . Applicant . Owner . Payor • Insured

• Insured

Which statement regarding third-party ownership of a life insurance policy is true? • Beneficiary is required to be irrevocable • Policy cannot be assigned once issued . It is illegal in most states • It is used extensively in estate-planning as well as business circumstances

• It is used extensively in estate-planning as well as business circumstances

K is an insured under a life insurance policy owned by a third party. Which of these statements is true? • K has no ownership rights • K may change the beneficiary • K may borrow against the policy's cash value • K may change the premium mode

• K has no ownership rights

An architecture firm would stand to lose a lot of money in the event of the death of its project manager. Which type of policy should the firm purchase on its project manager? • Universal Life insurance Policy • Key Person Life Policy • Graded Insurance Policy • Executive Insurance

• Key Person Life Policy

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

Which of these factors does NOT influence an applicant's need for life insurance? • Lifestyle of the applicant • Number of dependents • Future educational costs of the dependents • Self-maintenance expenses

• Self-maintenance expenses

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 • Employer purchase plan • Key employee plan • Deferred compensation plan

• Split-dollar plan

Which statement regarding a Key Employee Life policy is NOT true? • The application must be signed by the key employee . Its purpose is to prevent the financial loss that may ensue if a key employee dies • The beneficiary is named by the key employee • The company purchases, owns, pays the premiums and is the beneficiary

• The beneficiary is named by the key employee

The premiums paid by an employer for his employee's group life insurance are usually considered to be: • tax-deductible to the employer . partially deductible to the employee • tax-deductible to the employee • taxable income to the employee

• tax-deductible to the employer