Uses of Life Insurances-11 Flashcards
Human life value approach
Calculates the amount of money a person is expected to earn over his lifetime
Needs approach
A method of life insurance planning which identifies the needs of an individual and the individuals dependents
Busy-Sell agreements are also known as
Business continuation agreements
Busy-Sell agreements are used to
Assure the ownership of the business is properly transferred upon the death or disability of an owner or partner
Two step business continuation plan to keep the business running after the proprietors death
Buy-Sell plan
Insurance policy
Buy-Sell plan
An attorney drafts a buy sell plan stating the employees agreement to purchase the proprietors estate and sell the business
Insurance policy
Employee purchases a life insurance policy on the life of the proprietor
Two types of buy-sell agreements for partnerships
Cross purchase plans
Entity plans
Cross purchase plans
Each partner buys, pays the premiums, and is the beneficiary of a life insurance policy on each of the other partners.
Entity plans
The partnership itself agrees to buy the deceased partners share of the business
A close corporation
Is legally separate from its owners
It exists after one or more owners dies
Close corporation cross purchase plan
Requires surviving stockholders purchase the deceased stockholders interest in the company and their estate sell the interest to the surviving stockholders
Key person insurance
Purpose of key person insurance is to prevent the financial loss that may ensue when an owner, officer, or manager dies
Deferred compensation
Is an executive benefit an employer can use to pay a highly paid employee at a later date
Salary continuation plan
Works the same as deferred compensation except that the employer funds the plan rather than the employee
