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18 Cards in this Set
- Front
- Back
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Which of the following statements regarding deferred compensation plans is CORRECT? |
They permit a business to provide extra benefits to officers, executives, and other highly paid employees." Deferred compensation is an arrangement whereby an employee (or owner) agrees to forgo some portion of his or her current income (such as annual raises or bonuses) until a specified future date, typically retirement. |
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With three partners in a business, how many life insurance policies would be required to insure a cross-purchase buy-sell plan? |
6. Each partner owns, pays for, and is the beneficiary of an insurance policy on each of the other two partners in a cross-purchase buy-sell agreement. |
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Acme Partnership has three individual partners. The partnership itself owns, pays for, and is beneficiary of the life policies that insure the lives of the individual partners. This type of arrangement is called a |
The correct answer is " partnership entity buy-sell plan". An entity plan states that when a partner dies, that partner's interest is purchased by the partnership. The interest is then divided among the surviving partners. |
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Under a partnership cross-purchase plan, when there are 4 partners how many policies are needed? |
With a partnership cross purchase plan, each partner owns, is the beneficiary of, and pays the premiums for life insurance on the other partner or partners in an amount equal to his or her share of the purchase price. |
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All of these are legitimate uses of insurance in a business setting EXCEPT |
The correct answer is "Funding against general company financial loss". Life and health insurance can be used for a variety of reasons in a business setting. Safeguarding against general company financial loss is not one of them. |
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All of the following factors are used in the needs approach for determining the amount of required life insurance EXCEPT |
The correct answer is "the percentage of future income". The percentage of future income is not used in the needs approach for determining the amount of required life insurance. |
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Determining a person's economic value through the human life value approach does NOT consider the effects of |
The correct answer is "occupation". The human life value approach does not take into account occupation. |
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Life insurance can be used in business in all of the following ways EXCEPT |
Life insurance is typically not used as a profit sharing plan in a business setting |
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What is the tax advantage of key-person life insurance? |
Death proceeds are nontaxable". Death proceeds are nontaxable with key person insurance policies. |
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What does the statement "Life insurance creates an immediate estate" mean? |
"The total death benefit is paid whenever the insured dies". Life insurance creates an immediate estate by paying a death benefit whenever the insured dies. |
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Which of the following statements about key person insurance is CORRECT? |
"It can be considered a business asset". Complete control of the policy rests with the business, which means key person insurance can be considered a company owned asset not earmarked for any specific purpose. |
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In which business plan do the partners agree to buy the interest of the deceased partner? |
The correct answer is "Cross purchase". Under the cross-purchase buy-sell plan (the more common approach to a buyout), the partners individually agree to purchase the interest of a deceased partner. The executor of the deceased partner's estate is then directed to sell the interest to the surviving partners. The partnership itself is not a party to the agreement. |
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Which of these requires an analysis of a family's financial needs and objectives should the breadwinner die or become disabled? |
The correct answer is "Needs Approach". The needs approach requires an analysis of the family's financial needs and objectives should the breadwinner die or become disabled. Those needs are weighed against the ability of the family to meet them out of current or anticipated assets. |
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All of the following business arrangements can use "insured buy-sell agreements" to assure the orderly continuation of a business EXCEPT |
The correct answer is "government entities". Government entities are not eligible for buy-sell agreements. |
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All of the following factors are used in the needs approach for determining the amount of required life insurance EXCEPT |
The correct answer is "the percentage of future income". The percentage of future income is not used in the needs approach for determining the amount of required life insurance. |
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Determining a person's economic value through the human life value approach does NOT consider the effects of |
The human life value approach does not take into account occupation. |
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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 |
The needs approach analyzes the family's financial needs and objectives should the breadwinner die or become disabled. These needs are then weighed against the ability of the family to meet them out of current or anticipated assets. |
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What does the statement "Life insurance creates an immediate estate" mean? |
Life insurance creates an immediate estate by paying a death benefit whenever the insured dies. |
