Questions and Answers
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 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?
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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?
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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?
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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?
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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?
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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?
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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?
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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?
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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?
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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?
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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?
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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.
