ch 11

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?

Identifies the needs of an individual and the individual's dependents. Needs analysis is a method of life insurance planning which identifies the needs of an individual and the dependents

XYZ Corp gives money to an employee to purchase a life insurance policy and allows the employee to select the beneficiary. What kind of plan is this? a. split-dollar b. cross purchase c. key employee d. deferred compensation

a. split-dollar split dollar is an arrangement where an employer and an employee share in the cost of purchasing a life insurance policy on the employee. The employee is allowed to name the beneficiary

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

a. tax-deductible to the employer The amount an employer pays for his life insurance is typically deductible to the business

According to the needs approach, an emergency reserve fund's primary purpose is to a. pay off debt b. cover the cost of unexpected expenses c. pay for the cost of life insurance d. provide a supplemental income source

b. cover the cost of unexpected expenses An emergency reserve fund is designed primarily to cover the cost of unexpected expenses

Which of the following is NOT considered to be an expense for surviving family members of a deceased wage earner? a. estate taxes b. unemployment tax expenses c. funeral expense d. living expenses

b. unemployment tax expenses Unemployment tax liabilities are not expenses a surviving family will normally have

Which of these is NOT considered to be a cost connected with an individual's death? a. funeral expense b. tax liability c. business expenses d. probate costs

c. business expenses All of these are considered to be costs associated with an individuals death except business expenses

Which of the following disability buy-sell agreements is best suited for businesses with a limited number of partners? a. split dollar plan b. entity agreement c. cross-purchase agreement d. key person plan

c. cross-purchase agreement is a document that allows a company's partners or other shareholders to purchase the interest or shares of a partner who dies, becomes incapacitated, or retires. A cross purchase agreement is used in business continuation planning. Cross purchase agreement is best suited for businesses with a limited number of partners

Which of the following is NOT a reason for a business to buy key person life insurance? a. The reduction in sales as a direct result from death of the employee b. A void in leadership if the key person were to die c. The loss of company revenues while a replacement is being sought d. An increased pension liability if the key employee dies

d. An increased pension liability if the key employee dies All of these are reasons for a business organization to purchase key person life insurance except if the key employee dies

What is considered a valid reason for small corporations to insure the lives of its major stockholders? a. to provide an income for the surviving dependents b. reduce the company's tax liability c. to pay for final expenses d. fund a buy-sell agreement

d. fund a buy-sell agreement Life insurance is purchased to fund a buy-sell agreement in the event of the death of a major stockholders in a business

Employers often purchase life insurance on a key employee in order to a. provide an income to the deceased key employee's family b. pay for funeral costs c. provide the employer with a tax credit d. pay for finding and training a replacement if the employee dies prematurely

d. pay for finding and training a replacement if the employee dies prematurely Employers will frequently purchase life insurance on a key employee to help offset the cost of finding and training a replacement in the event of the key employees premature death