Life Insurance FundamentalsQuestion 137 of 315
Acme Manufacturing buys a life policy on its CEO. Acme pays the premiums, is the policyowner, and is the beneficiary. What kind of arrangement is this?
a.Key person insurance
b.Buy-sell agreement
c.Split-dollar plan
d.Group term life
Explanation
Key person (or 'key employee') insurance is owned by the business on the life of an employee whose death would harm the firm. The business is both owner and beneficiary; proceeds offset lost profits and the cost of recruiting a replacement.
Law Reference: Standard insurance principlesPractice all 315 questions free — no signup required.
Related questions on this topic
- Marco buys a $500,000 life insurance policy on his spouse. They divorce three years later, and Marco continues paying premiums. When his ex-spouse dies four years after the divorce, can Marco still collect?
- Stranger-Originated Life Insurance (STOLI) is best described as:
- Two business partners want to make sure that when one dies, the surviving partner can buy out the deceased's share and the family receives cash. Each partner owns a life policy on the OTHER partner. This is a:
- What is the main estate planning advantage of an Irrevocable Life Insurance Trust (ILIT)?
- Which best describes a survivorship (second-to-die) life insurance policy?
- Which life insurance design starts with lower premiums during the first few policy years and then steps up to a higher level premium that remains constant for life?
Last reviewed: · editorial process
PrepPass Editorial Team · Verified against California Life & Health Insurance License Exam · How we review