Uses of life insurance

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

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 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

A Loss-Purchase Buy and Sell agreement among three partners, funded with individual life insurance, would require how many policies? 3 6 9 12

6

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? 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 C is the policyowner and the insured, and ABC is the beneficiary C is the policyowner, the insured, and 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. 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

Each partner must own a policy on the other partners

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 insurance a client should apply for

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

An engineering firm that would suffer financially from the death of a project manager should purchase a: Buy and Sell Agreement Key Person Life Policy Deferred Annuity contract Cross-Purchase plan

Key person life policy

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

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