Insurance MCQ

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? Answer: Company X

What is considered a valid reason for small businesses to insure the lives of its major shareholders? Answer: Fund a buy-sell agreement

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? Answer: Split-dollar plan

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? Answer: ABC is the policyowner, C is the insured, and ABC is the beneficiary

Which of these is NOT a reason for a business to buy key person life insurance? Answer: A pension deficiency if the key employee dies

All of these are legitimate uses of insurance in a business setting EXCEPT? A) Funding against financial loss by the death of a key employee. B) Funding business continuation agreements. C) Funding against general company financial loss. Answer: D) Funding a buy-sell plan.

If a corporation collects the policy benefit on a key person life policy, which of the following is correct? A) Amount received is taxable. B) Amount received is non-taxable. C) Amount received is partially taxable. D) Amount received is subject to exclusionary rule. Answer: B) Amount received is non-taxable.

In which business plan do the partners agree to buy the interest of the deceased partner? A) Business insurance plan. B) Stock purchase. C) Cross purchase. D) Entity. Answer: C) Cross purchase.

A partnership owns, pays for, and is the beneficiary of life insurance policies on the lives of its individual partners. This is known as? A) a Keough plan. B) an entity buy-sell plan. C) a stock redemption plan. D) a cross purchase plan. Answer: B) an entity buy-sell plan.

With three partners in a business, how many life insurance policies would be required to insure a cross-purchase buy-sell plan? A) 9. B) 12. C) 3. D) 6. Answer: D) 6.

Which of the following statements regarding key person insurance is NOT correct? A) Key person life insurance indemnifies a business for financial loss caused by the death of a key employee or key executive. B) Premiums for a key person life insurance policy are a tax-deductible expense to the business. C) The business may borrow from the cash value of a permanent key person life insurance policy. D) The policy's death proceeds received by the business are not taxable. Answer: B) Premiums for a key person life insurance policy are a tax-deductible expense to the business.

Three business partners individually agree to acquire the interest of a deceased partner and own life insurance on each of the other partners in the amount of his or her share of the business's buyout value. What is described here is? A) an entity buy-sell plan. B) a stock redemption buy-sell plani. C) a 401(k) plan. D) a cross-purchase buy-sell plan. Answer: D) a cross-purchase buy-sell plan.

What is the tax advantage of key-person life insurance? A) Death proceeds are nontaxable. B) Premiums are tax deductible. C) Cash value increase is taxed at a low rate. D) Proceeds are deferred. Answer: A) Death proceeds are nontaxable.

Three individuals form a partnership with equal shares valued at $300,000. If they were persuaded to use an "entity" buy-sell plan funded with life insurance, how many policies and for what amounts would be purchased? A) Three policies for $200,000 each. B) Three policies for $100,000 each. C) Six policies for $50,000 each. D) One policy for $100,000. Answer: B) Three policies for $100,000 each.

The approach that is used to make life insurance recommendations, determines the total funds available to a family from all sources, and subtracts the amount needed to meet their financial objectives is known as the? A) Input-Output approach. B) Human Life Value approach. C) Needs approach. D) Dollar Valuation approach. Answer: C) Needs approach.

Life insurance can be used in business in all of the following ways EXCEPT? A) as an employee benefit. B) as a profit sharing plan. C) as a form of business interruption insurance. D) as a funding medium. Answer: B) as a profit sharing plan.

Determining a person's economic value through the human life value approach does NOT consider the effects of? A) savings. B) earnings. C) occupation. D) investments. Answer: C) occupation.

All of the following factors are used in the needs approach for determining the amount of required life insurance EXCEPT? A) the monthly income. B) the percentage of future income. C) the emergency fund period. D) the education fund. Answer: B) the percentage of future income

All of the following business arrangements can use "insured buy-sell agreements" to assure the orderly continuation of a business EXCEPT? A) sole proprietorships. B) close corporations. C) partnership forms of business. D) government entities. Answer: D) government entities.

All of these are examples of a business use for life insurance EXCEPT? A) Workers Compensation. B) Partnership entity plan. C) Key person. D) Buy-sell funding. Answer: A) Workers Compensation.