2: Which of the following is correct concerning the taxation of premiums in a key-person life insurance policy?
A Premiums are not tax deductible as a business expense.
B Premiums are tax deductible by the key employee.
C Premiums are tax deductible as a business expense.
D Premiums are taxable to the employee.
The business cannot take a tax deduction for the expense of the premium. However, if the key employee dies, the benefits paid to the business are usually received tax free.
5: If an insured changes his payment plan from monthly to annually, what happens to the total premium?
A Decreases
B Stays the same
C Doubles
D Increases
Because the insurer would have the entire premium to invest for a full year, they would reduce the premium amount.
8: Joe, Larry, and Curly own a small business. They have made a legal arrangement which states that if one of them dies or becomes disabled, the other two will be able to buy the partner’s shares. Which term best describes this arrangement?
A Business Continuation
B Shares Distribution
C Business Partner Disability Provision
D Buy-up Distribution
In a Business Continuation arrangement, the partners of a business can buy shares belonging to a recently deceased or disabled partner.
10: Which of the following is the best reason to purchase life insurance rather than annuities?
A To liquidate a sum of money over a period of years
B To create regular income payments
C To liquidate a sum of money over a lifetime
D To create an estate
With insurance, the death benefit creates an immediate estate should the insured die.