Chapter 10 - Uses of Life Insurance

Employers often purchase life insurance on a key employee in order to

provide an income to the deceased key employee's family

pay for funeral costs

provide the employer with a tax credit

pay for finding and training a replacement if the employee dies prematurely

pay for finding and training a replacement if the employee dies prematurely

When an individual is planning to protect his family with life insurance, one method of doing so is called needs analysis. What exactly does needs analysis involve?

identifies the needs of an individual and the individual's dependents

takes into account the PV of future income earned by the breadwinner

places a dollar value on the life of the individual

establishes the investment risk level acceptable to the individual

identifies the needs of an individual and the individual's dependents

XYZ Corp. gives money to an employee to purchase a life insurance policy and allows the employee to select the beneficiary. What kind of plan is this?

split-dollar

cross purchase

key employee

deferred compensation

split-dollar

Which of these factors does NOT influence an individual's need for life insurance?

lifestyle of the applicant

number of dependents

future educational costs of the dependents

self-maintenance expenses

self-maintenance expenses

According to the needs approach, an emergency reserve fund's primary purpose is to

pay off debt

cover the cost of unexpected expenses

pay the cost of life insurance

provide a supplemental income source

cover the cost of unexpected expenses

What is considered a valid reason for small corporations to insure the lives of its major stockholders?

to provide an income for the surviving dependents

reduce the company's tax liability

to pay for final expenses

fund a buy-sell agreement

fund a buy-sell agreement

The premiums paid by an employer for his employee's group life insurance are usually considered to be

tax-deductible to the employer

partially deductible to the employee

tax-deductible to the employee

taxable income to the employee

tax-deductible to the employer

With life insurance, the needs approach is used primarily in determining

which insurance company to purchase the coverage from

how much life insurance a client should apply for

the type of life insurance that should be purchased

a budget for the surviving dependents to follow in the event of the client's death

how much life insurance a client should apply for

Which of the following disability buy-sell agreements is best suited for businesses with a limited number of partners?

split-dollar plan

entity agreement

cross-purchase agreement

key person plan

cross-purchase agreement

When using the needs approach for life insurance planning, a lump sum may be created to provide for all of the following EXCEPT

final expenses

charitable donations

education

employee benefits

employee benefits

Which of the following is NOT a reason for a business to buy key person life insurance?

the reduction in sales as a direct result from death of the key employee

void in leadership

loss of company revenues

increased pension liability if the key employee dies

increased pension liability if the key employee dies

Which of these is NOT considered to be a cost connected with an individual's death?

funeral expenses

tax liability

business expenses

probate costs

business expenses

Which of the following is NOT considered to be an expense for surviving family members of a deceased wage earner?

Estate taxes

Funeral expense

Unemployment tax expenses

Living expenses

Unemployment tax expenses