Chapter 10 (Summary): Uses of Life Insurance

Flashcards covering key concepts related to the uses of life insurance, business continuation plans, and different insurance policies.

Buy-Sell Plan

A business continuation plan to keep the business running after the proprietor's death.

Cross-purchase plan

A type of buy-sell agreement where each partner purchases, pays premiums for, and is the beneficiary of a life insurance policy on the other partners.

Entity Plan

A type of buy-sell agreement where the partnership agrees to buy the deceased partner's share of the business.

Closely held corporation

A corporation that is legally separate from its owners.

Stock redemption plan

An entity plan for closely held corporations.

Human Life Value Approach

Calculates the amount of money a person is expected to earn over their lifetime to determine the face amount of life insurance needed.

Needs Approach

Determines the amount of life insurance an individual needs based on financial goals and objectives.

Buy-Sell Agreements

Business continuation agreements also known as buy-sell agreements.

Key person insurance

Insurance that prevents financial loss when an owner, officer, or manager dies.

Corporate-owned life insurance

Generally treated as a deductible business expense.

Deferred compensation

An executive benefit used to pay a highly paid employee at a later date.

Salary Continuation Plan

A corporate sponsored benefit designed to replace an executive's income in the event of death, retirement, or disability.

Executive bonus plan

A non-qualified employee benefit where an employer pays a bonus to an employee to cover life insurance premiums.