Uses of Life Insurance

Question 1

This is a plan which provides that, upon a business owner’s death, surviving owners will purchase the deceased’s interest, often with funds from life insurance policies owned by each principal on the lives of all of the other principals.

Answer 1

Cross-Purchase Plan

Question 2

This is an agreement whereby a business assumes the obligation of purchasing a deceased owner’s interest in the business, which proportionately increases the interests of the surviving owners.

Answer 2

Entity Plan

Question 3

This is a method of determining an individual’s economic worth as measured by the sum of the individual’s future earnings that’s devoted to the individual’s family.

Answer 3

Human Life Value Approach

Question 4

This insurance protects a business against financial loss caused by the death or disability of a vital member of the company, typically individuals who possess special managerial or technical skills or expertise.

Answer 4

Key Person Insurance

Question 5

This is a method for determining how much insurance protection a person should have by analyzing a family’s or business’s needs and objectives if the insured were to die, become disabled, or retire.

Answer 5

Needs Approach