Chapter 6 Employers Insurance Flashcards
Sole Proprietor
Life insurance can provide funding to the deceased’s family after liquidation and protect value of business
Buy- Sell Agreement
States that the interest of any deceased partner will be sold to the remaining partners by the surviving spouse or family.
Cross Purchase Plan
Usually used by a business with only two or three partners. Each person owns and names themselves as the beneficiary on a life insurance policy naming the other partner as the insured.
In company with two partners, two policies are necessary. In one with 3, 6 policies are required.
Entity Purchase Plan
Same function as cross purchase plan ,but is usually used when there are multiple partners. THe partnership, instead of each partner is the owner benie of a single life insurance policy covering all partners. Amount will depend on the covered partner’s interest in the business.
Key Life Insurance
Allows a corporation to be the owner, premium pay or and benie of a life insurance policy covering a key person.
THE BUSINESS controls the policy i and can use the death benefit for any purpose deemed important by the corporation.
KPLI: Indemnification
Will compensate the business for financial loss cause by the death of the key person
KPLI: Reserve Fund
Provides an asset that increases in value as the cash value of the insurance policy grows. These assets can be used as a cash reserve fund for the business while the key person is ALIVE
KPLI: Business Credit
This guarantees that finds will be available to pay off debts if a key individual dies. This enhances credit standing
KPLI: Tax benefits
Death benefits and Cash value accumulation of the contract are not taxable to the business.
PREMIUMS ARE NOT DEDUCTIBLE AS A BUSINESS EXPENSE
TO QUALIFY FOR THE TAX ADVANTAGE OF A DEFERRED COMPENSATION PLAN..
There must be a written agreement between the employer and employee that outlines the period of income deferral.
SPLIT DOLLAR INSURANCE
The premiums, ownership rights and proceeds are split between two parties(usually employer and employee ,or parent and child)
Used when employee needs insurance but can’t afford premium. Cash value of policy guarantees return of premium to employer.
balance proceeds are paid to benie.
Means employer is not entitled to cash value of policy.
SPLIT DOLLAR INSURANCE
The premiums, ownership rights and proceeds are split between two parties(usually employer and employee ,or parent and child)
Used when employee needs insurance but can’t afford premium. Cash value of policy guarantees return of premium to employer.
balance proceeds are paid to benie.
Means employer is not entitled to cash value of policy.
SPI most common use
As incentive plan between employer and employee
Business-provided insurance for stockholders
Business partners or co-owners
Purchased by parent or child
SPI most common use
As incentive plan between employer and employee
Business-provided insurance for stockholders
Business partners or co-owners
Purchased by parent or child
Group Life Insurance
Typically no evidence of insurability required
No medical anything
Only require evidence of insurability for new employee wants to join group(where employees pay premium after initial time of eligibility.
Advantages Group Insurance
- Tax advantages
- Contribution to retirement plans provide long-term benefits to both employees and employer
- Benefits provided at much lower cost
- Good Group Policy promotes loyalty
- Good loyalty promotes good productivity
- Much cheaper in a group better for those can’t affford individual needed insurance
- Family members or dependents can be covered through both group and individual life contracts
8 . Tailored to meet needs of specific group - Illegal for employer to be benie on employees group life insurance policy
COBRA
Consolidated Omnibus Budget Reconciliation Act of 1985
Extends group health insurance coverage to terminated employees and their families for up to 36 months
Master Contract
A contract between the insurer and a “sponsoring organization”
Upon enrollment, a CERTIFICATE of insurance is given to each member of the group to: Provide evidence of coverage, summarize the plan benefits, list the terms of coverage and rights
Contributory
Employees (members) pay part of the premium
In order to have this, 75 percent of all eligible employees must be insured.
Non-Contributory
Employers or the sponsoring organization pay all the premiums
100 percent of eligible employees must be insured
Stop Loss Agreement
Contract states that after a defined amount of benefits are paid by the company ( 1 mil or higher) the insurance company will pay the rest of the claims, Premium costas are typically low, due to high deductible.
Stop Loss Agreement
Contract states that after a defined amount of benefits are paid by the company ( 1 mil or higher) the insurance company will pay the rest of the claims, Premium costas are typically low, due to high deductible.
Cali insurance Code states that an insured is no longer eligible for group insurance must be :
Provided a notice of the right to convert to an individual policy within 15 days before the end of the required 3 day conversion period. If this requirement is not met, the individual will be given an additional period off up to 25 days after the notice is actually given, so long as this period does not extend for more that 60 days after the end of the original 31-day conversion period
