XCEL USES OF LIFE INSURANCE UPDATED
COMPLETE QUESTIONS AND ANSWERS
PROFESSIONAL REVIEW SHEET
●● Which type of plan allows an employer to give money to an
employee for buying a life insurance policy and also permits the
employee to select the beneficiary?
Answer: Split-dollar plan
A split-dollar plan is an arrangement where an employer and an
employee share in the cost of purchasing a life insurance policy on the
employee. The employee is also allowed to name the policy beneficiary.
●● C is a key employee at ABC Incorporated. If a Key Employee life
policy is purchased on her life, which of these statements would be true?
Answer: ABC is the policyowner, C is the insured, and ABC is the
beneficiary
●● What is considered a valid reason for small businesses to insure the
lives of its major shareholders?
Answer: Fund a buy-sell agreement
Life insurance is purchased to fund a buy-sell agreement in the event of
the death of a major shareholder in a business.
, ●● Two partners own equal shares in a business worth a total of
$1,000,000. If they both commit to the purchase of a life insurance
policy that will fund a Buy-Sell Agreement, which of the following is
TRUE?
Answer: Each partner owns a $500,000 policy on their partner's life
The amount of the policy is equivalent to each partner's share of the
business. When one partner dies, the other partner receives the death
benefit from the life insurance on the deceased partner, which is then
used to buy the deceased partner's ownership of the business.
●● Which statement regarding third-party ownership of a life insurance
policy is true?
Answer: It is used extensively in estate-planning as well as business
circumstances
●● Company Z has a Cross Purchase Buy-Sell Agreement in place
among its three founding partners. If the agreement is funded with
individual life insurance, what would it require?
Answer: Each partner must own a policy on the other partners
●● Which of these is NOT a reason for a business to buy key person life
insurance?
COMPLETE QUESTIONS AND ANSWERS
PROFESSIONAL REVIEW SHEET
●● Which type of plan allows an employer to give money to an
employee for buying a life insurance policy and also permits the
employee to select the beneficiary?
Answer: Split-dollar plan
A split-dollar plan is an arrangement where an employer and an
employee share in the cost of purchasing a life insurance policy on the
employee. The employee is also allowed to name the policy beneficiary.
●● C is a key employee at ABC Incorporated. If a Key Employee life
policy is purchased on her life, which of these statements would be true?
Answer: ABC is the policyowner, C is the insured, and ABC is the
beneficiary
●● What is considered a valid reason for small businesses to insure the
lives of its major shareholders?
Answer: Fund a buy-sell agreement
Life insurance is purchased to fund a buy-sell agreement in the event of
the death of a major shareholder in a business.
, ●● Two partners own equal shares in a business worth a total of
$1,000,000. If they both commit to the purchase of a life insurance
policy that will fund a Buy-Sell Agreement, which of the following is
TRUE?
Answer: Each partner owns a $500,000 policy on their partner's life
The amount of the policy is equivalent to each partner's share of the
business. When one partner dies, the other partner receives the death
benefit from the life insurance on the deceased partner, which is then
used to buy the deceased partner's ownership of the business.
●● Which statement regarding third-party ownership of a life insurance
policy is true?
Answer: It is used extensively in estate-planning as well as business
circumstances
●● Company Z has a Cross Purchase Buy-Sell Agreement in place
among its three founding partners. If the agreement is funded with
individual life insurance, what would it require?
Answer: Each partner must own a policy on the other partners
●● Which of these is NOT a reason for a business to buy key person life
insurance?
