Chapter 10 Uses of Life Insurance
This flashcard set explains business continuation strategies like cross-purchase and entity agreements, along with two key methods for determining life insurance needs — the Human Life Value and Human Needs approaches. Essential for planning both personal and business financial protection.
are agreements that provide that upon a business owner’s death, surviving owners will purchase the deceased’s interest, often with funds from life insurance policies owned by each principal on the lives of all other principals.
cross-purchase plans
Key Terms
are agreements that provide that upon a business owner’s death, surviving owners will purchase the deceased’s interest, often with funds from life insurance policies owned by each principal on the lives of all other principals.
cross-purchase plans
are agreements in which a business assumes the obligation of purchasing a deceased owner’s interest in the business, thereby proportionately increasing the interests of surviving owners.
entity
is an individual’s economic worth, measured by the sum of the individual’s future earnings devoted to the individual’s family.
human life value approach
is a method for determining how much insurance protection a person should have by analyzing a family’s or business’s needs and objectives if the insured were to die, become disabled, or retire.
human needs approach
protects a business against financial loss caused by the death or disability of a vital member of the company, usually individuals possessing special managerial or technical skills or expertise.
key person insurance
describes the ethical duty of a producer to sell a product that fits the prospect’s needs rather than the producer’s needs. An example of a needs-based violation is a prospect being sold insurance with the highest premium (and the most significant commission) instead of the proper coverage. By committing themselves to professionalism and the client’s needs, insurance producers can act responsibly and ethically.
needs-based selling
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| Term | Definition |
|---|---|
are agreements that provide that upon a business owner’s death, surviving owners will purchase the deceased’s interest, often with funds from life insurance policies owned by each principal on the lives of all other principals. | cross-purchase plans |
are agreements in which a business assumes the obligation of purchasing a deceased owner’s interest in the business, thereby proportionately increasing the interests of surviving owners. | entity |
is an individual’s economic worth, measured by the sum of the individual’s future earnings devoted to the individual’s family. | human life value approach |
is a method for determining how much insurance protection a person should have by analyzing a family’s or business’s needs and objectives if the insured were to die, become disabled, or retire. | human needs approach |
protects a business against financial loss caused by the death or disability of a vital member of the company, usually individuals possessing special managerial or technical skills or expertise. | key person insurance |
describes the ethical duty of a producer to sell a product that fits the prospect’s needs rather than the producer’s needs. An example of a needs-based violation is a prospect being sold insurance with the highest premium (and the most significant commission) instead of the proper coverage. By committing themselves to professionalism and the client’s needs, insurance producers can act responsibly and ethically. | needs-based selling |
between two parties. Life insurance is written on one party’s life who names the beneficiary of the net death benefits (death benefit less cash value). The other party is assigned the cash value, with both typically sharing premium payments. | split dollar plans |
allow someone living with a life-threatening condition to sell their existing life insurance policy and use the proceeds before their death | viatical settlements |
the owners of the original insurance policy usually receive a percentage of the policy face value from a third party that purchases the policy | viators |
is a legal contract that determines what will be done with a business in the event that a owner dies or become disabled | a buy-sell agreement (business continuation agreement |
buy-sell plans | cross purchase method |
is a life insurance plan in whicha an employer and employee share the cost of insurance premiums. gives employee incentive to stay with employer | split dollar plan |