Chapter 10 Uses of Life Insurance

Question 1

Human Life Value Approach

Answer 1

Out Dated, calculated on future earnings and doesnt take into account inflation or rasies etc.

Question 2

Needs Approach

Answer 2

considers families needs if owner becomes dead or disabled

Question 3

Is Term Life a reliable retirement tool?

Answer 3

NO

Question 4

True or False:

Universal Life, Variable Life, Adjustable Life are permanent forms of contracts and can be used to produce reliable retirement income

Answer 4

TRUE

Question 5

Partnerships

Answer 5

2 or more owners who contribute and share profits

Question 6

Corporations

Answer 6

publicly or closely held

Question 7

Life insurance can be used in business as….

Answer 7

1. Funding Medium
2. business interruption insurance
3. employee benefit

Question 8

Buy-Sell Agreements

Answer 8

Can only be drafted by an attorney.

deceased owners interest will be sold and purchased at a predetermined price.

Question 9

4 ways to fund Buy-Sell Agreement

Answer 9

1. Using Cash on Hand
2. borrowing funds
3. installment payments
4. through life insurance proceeds

Question 10

True or False:

Disability buyouts are normally entity purchases not cross purchases

Answer 10

TRUE

Question 11

Are Key person insurance premium payments tax deductible?

Answer 11

NO

Question 12

Are death benefits taxable?

Answer 12

NO

Question 13

Salary Continuation Plan

Answer 13

set up by employer and employees and is funded by the employer

Question 14

Split Dollar Plans

Answer 14

encourage young employees to join a company and for established ones to stay

Question 15

Deferred Compensation Plans

Answer 15

Non-Qualified, contractual agreement to pay benefits in the future.

use to provide fringe benefits such as retirement income

Question 16

Coverdell Education Savings Account

Answer 16

tax favored, for funding education expenses until the age of 18. if funds are not used for intended purpose they are taxed 10%.

Question 17

Employee Benefit Plans

Answer 17

employers offer employees benefits

Question 18

Key Person Insurance

Answer 18

protection against financial loss if a key employee dies or is disabled

Question 19

Salary Continuation Plans

Answer 19

salary is continued upon retirement, death, or disability

Question 20

Split Dollar Life Insurance

Answer 20

arrangement between 2 parties where life insurance is written on the life of one, who names the beneficiary of death benefits (minus cash value) and the other is assigned the cash value with both sharing premium payments.