Business uses of insurance Flashcards
What is a buy sell agreement used for
to buy out a partner, owner, or shareholder of a corporation upon disability or death
What is an advantage of a buy sell agreement re: the price of the business
It sets the price of the biz before the disability or death occurs
How does a buy sell work re:premiums and payouts
policy owners pay small premiums then when the death/disability occurs the policy pays out so the owners can buy out the disabled or dead party
What happens to a buy sell disability policy if the biz ceases?
Disability policy can be terminated
What happens to buy sell life ins if the biz ceases?
-Can transfer policy to biz partner
-cash it in for cash value amt
-transfer for value rule not triggered - proceeds received tax free
Who is the owner and beneficiary of a key employee life policy?
The business
Are premiums on a key person life insurance policy deductible?
No
Who receives the death benefit on a split dollar life insurance policy?
beneficiary named by the insured
What is the death benefit on a split life policy?
-Corp receives return of contributions = cash surrender value
-beneficiary receives death benefit equal to amount at risk
What are corporation contributions on a split life policy equal to
equal to the annual increase in cash surrender value - the executive pays the remainder of the premium
When were split dollar policies used?
prior to 2003
What does overhead expense insurance cover?
many ongoing costs of the business while the owner is disabled
What is the objective of overhead insurance?
To keep staff and premises available if the owner recovers from disability
How long is a overhead insurance able to be used
Duration of policy is usually less than 2 years. Many cover only a few months
What do you need before overhead insurance can be issued by the insurance co?
Extensive documentation to quantify monthly expenses
