Podcast
Questions and Answers
In life insurance, the needs approach is used mostly to establish?
In life insurance, the needs approach is used mostly to establish?
how much life insurance a client should apply for
Which of these factors does not influence an applicant's need for life insurance?
Which of these factors does not influence an applicant's need for life insurance?
Which of these is NOT considered to be a cost connected with an individual's death?
Which of these is NOT considered to be a cost connected with an individual's death?
If two partners on equal shares in a business worth a total of $1,000,000 commit to the purchase of a life insurance policy that will fund a buy-sell agreement, what is true?
If two partners on equal shares in a business worth a total of $1,000,000 commit to the purchase of a life insurance policy that will fund a buy-sell agreement, what is true?
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Which of these is not a reason for a business to buy key person's life insurance?
Which of these is not a reason for a business to buy key person's life insurance?
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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?
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?
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Which of these is not relevant when determining the amount of personal life insurance needed?
Which of these is not relevant when determining the amount of personal life insurance needed?
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Which statement regarding a key employee life policy is not true?
Which statement regarding a key employee life policy is not true?
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A key employee policy is taken out by Company X on its vice president. If the employee leaves Company X and begins working for Company Y, where would the death proceeds be directed if the policy is still in force?
A key employee policy is taken out by Company X on its vice president. If the employee leaves Company X and begins working for Company Y, where would the death proceeds be directed if the policy is still in force?
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Which statement regarding third-party ownership of a life insurance policy is true?
Which statement regarding third-party ownership of a life insurance policy is true?
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What is considered a valid reason for small businesses to ensure the lives of their major shareholders?
What is considered a valid reason for small businesses to ensure the lives of their major shareholders?
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Which of these is not a reason for purchasing life insurance on the life of a minor?
Which of these is not a reason for purchasing life insurance on the life of a minor?
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The premiums paid by an employer for their employees' group life insurance are usually considered to be?
The premiums paid by an employer for their employees' group life insurance are usually considered to be?
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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 a key employee at ABC Incorporated. If a Key Employee life policy is purchased on her life, which of these statements would be true?
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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?
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?
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In a Key Employee life insurance policy, the third-party owner can be all of the following EXCEPT?
In a Key Employee life insurance policy, the third-party owner can be all of the following EXCEPT?
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K is an insured under a life insurance policy owned by a third party. Which of these statements is true?
K is an insured under a life insurance policy owned by a third party. Which of these statements is true?
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When an individual is planning to protect his family with life insurance, what does needs analysis involve?
When an individual is planning to protect his family with life insurance, what does needs analysis involve?
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Three law partners form a Cross-Purchase Buy and Sell agreement. How many total life policies are needed for this agreement?
Three law partners form a Cross-Purchase Buy and Sell agreement. How many total life policies are needed for this agreement?
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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?
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?
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Study Notes
Life Insurance: Key Concepts
- The needs approach in life insurance helps determine the appropriate amount of coverage a client requires.
- Self-maintenance expenses do not impact the life insurance needs of an applicant.
Costs Associated with Death
- Business expenses are not considered costs related to an individual's death.
Buy-Sell Agreements
- In a partnership with equal shares and a company value of $1,000,000, each partner should have a life insurance policy of $500,000 on the other partner's life to fund a buy-sell agreement.
Key Person Life Insurance
- Key person life insurance is not purchased for pension deficiencies but is crucial for securing business continuity when a key employee passes.
- Firms may need a Key Person Life Policy to compensate for the financial loss associated with the death of vital roles, such as a project manager.
Personal Life Insurance Considerations
- The local unemployment rate is irrelevant when assessing personal life insurance needs.
- In a key employee policy, the employer is the policy owner, and the employee does not name the beneficiary; it defaults to the employer.
Ownership Rights and Policies
- A key employee life insurance policy remains in effect even if the employee leaves the company, with proceeds directed to the original policy owner.
- Third-party ownership of life insurance is a common strategy in both estate planning and business contexts.
Business Life Insurance Strategies
- Small businesses often insure major shareholders to fund buy-sell agreements.
- Life insurance on minors is generally ignored when considering benefits to the child if both parents were to die.
Tax Implications
- Premiums for group life insurance paid by employers are generally tax-deductible.
Cross Purchase Agreements
- A Cross Purchase Buy-Sell Agreement requires each partner to maintain a life insurance policy on all other partners, totaling six policies in a three-partner setup.
Split-Dollar Plans
- A split-dollar plan allows an employer to fund a life insurance policy for an employee while enabling the employee to designate the beneficiary.
Needs Analysis
- Needs analysis is a method for determining the life insurance requirements of an individual and their dependents.
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Description
Test your knowledge on essential life insurance concepts, including the needs approach, costs associated with death, buy-sell agreements, and key person life insurance. This quiz will help reinforce your understanding of how life insurance functions in personal and business contexts.
