Chapter 6 Employers Insurance

Question 1

Sole Proprietor

Answer 1

Life insurance can provide funding to the deceased’s family after liquidation and protect value of business

Question 2

Buy- Sell Agreement

Answer 2

States that the interest of any deceased partner will be sold to the remaining partners by the surviving spouse or family.

Question 3

Cross Purchase Plan

Answer 3

Usually used by a business with only two or three partners. Each person owns and names themselves as the beneficiary on a life insurance policy naming the other partner as the insured.

In company with two partners, two policies are necessary. In one with 3, 6 policies are required.

Question 4

Entity Purchase Plan

Answer 4

Same function as cross purchase plan ,but is usually used when there are multiple partners. THe partnership, instead of each partner is the owner benie of a single life insurance policy covering all partners. Amount will depend on the covered partner’s interest in the business.

Question 5

Key Life Insurance

Answer 5

Allows a corporation to be the owner, premium pay or and benie of a life insurance policy covering a key person.

THE BUSINESS controls the policy i and can use the death benefit for any purpose deemed important by the corporation.

Question 6

KPLI: Indemnification

Answer 6

Will compensate the business for financial loss cause by the death of the key person

Question 7

KPLI: Reserve Fund

Answer 7

Provides an asset that increases in value as the cash value of the insurance policy grows. These assets can be used as a cash reserve fund for the business while the key person is ALIVE

Question 8

KPLI: Business Credit

Answer 8

This guarantees that finds will be available to pay off debts if a key individual dies. This enhances credit standing

Question 9

KPLI: Tax benefits

Answer 9

Death benefits and Cash value accumulation of the contract are not taxable to the business.

PREMIUMS ARE NOT DEDUCTIBLE AS A BUSINESS EXPENSE

Question 10

TO QUALIFY FOR THE TAX ADVANTAGE OF A DEFERRED COMPENSATION PLAN..

Answer 10

There must be a written agreement between the employer and employee that outlines the period of income deferral.

Question 11

SPLIT DOLLAR INSURANCE

Answer 11

The premiums, ownership rights and proceeds are split between two parties(usually employer and employee ,or parent and child)

Used when employee needs insurance but can’t afford premium. Cash value of policy guarantees return of premium to employer.

balance proceeds are paid to benie.

Means employer is not entitled to cash value of policy.

Question 12

SPLIT DOLLAR INSURANCE

Answer 12

The premiums, ownership rights and proceeds are split between two parties(usually employer and employee ,or parent and child)

Used when employee needs insurance but can’t afford premium. Cash value of policy guarantees return of premium to employer.

balance proceeds are paid to benie.

Means employer is not entitled to cash value of policy.

Question 13

SPI most common use

Answer 13

As incentive plan between employer and employee
Business-provided insurance for stockholders
Business partners or co-owners
Purchased by parent or child

Question 14

SPI most common use

Answer 14

As incentive plan between employer and employee
Business-provided insurance for stockholders
Business partners or co-owners
Purchased by parent or child

Question 15

Group Life Insurance

Answer 15

Typically no evidence of insurability required

No medical anything

Only require evidence of insurability for new employee wants to join group(where employees pay premium after initial time of eligibility.

Question 16

Advantages Group Insurance

Answer 16

1. Tax advantages
2. Contribution to retirement plans provide long-term benefits to both employees and employer
3. Benefits provided at much lower cost
4. Good Group Policy promotes loyalty
5. Good loyalty promotes good productivity
6. Much cheaper in a group better for those can’t affford individual needed insurance
7. Family members or dependents can be covered through both group and individual life contracts
   8 . Tailored to meet needs of specific group
8. Illegal for employer to be benie on employees group life insurance policy

Question 17

COBRA

Answer 17

Consolidated Omnibus Budget Reconciliation Act of 1985

Extends group health insurance coverage to terminated employees and their families for up to 36 months

Question 18

Master Contract

Answer 18

A contract between the insurer and a “sponsoring organization”

Upon enrollment, a CERTIFICATE of insurance is given to each member of the group to: Provide evidence of coverage, summarize the plan benefits, list the terms of coverage and rights

Question 19

Contributory

Answer 19

Employees (members) pay part of the premium

In order to have this, 75 percent of all eligible employees must be insured.

Question 20

Non-Contributory

Answer 20

Employers or the sponsoring organization pay all the premiums

100 percent of eligible employees must be insured

Question 21

Stop Loss Agreement

Answer 21

Contract states that after a defined amount of benefits are paid by the company ( 1 mil or higher) the insurance company will pay the rest of the claims, Premium costas are typically low, due to high deductible.

Question 22

Stop Loss Agreement

Answer 22

Contract states that after a defined amount of benefits are paid by the company ( 1 mil or higher) the insurance company will pay the rest of the claims, Premium costas are typically low, due to high deductible.

Question 23

Cali insurance Code states that an insured is no longer eligible for group insurance must be :

Answer 23

Provided a notice of the right to convert to an individual policy within 15 days before the end of the required 3 day conversion period. If this requirement is not met, the individual will be given an additional period off up to 25 days after the notice is actually given, so long as this period does not extend for more that 60 days after the end of the original 31-day conversion period