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15 Cards in this Set
- Front
- Back
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What is a Buy/Sell Agreement?
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An agreement among owners of a firm that provides the continuation of a business upon the premature death of an owner. Through legal contract the deceased's estate must sell the deceased's interest back to the entity, who must buy at a predetermined price.
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What is a nonparticipating (nonpar) policy?
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Insurance policies which do not pay dividends to policyowners.
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What is a participating (par) policy?
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Policies that may pay annual dividends to policyowners.
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What is pure risk?
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The difference between the cash value and the face value.
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What is the face value of a policy?
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The death benefit.
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What does the term "mutual" mean in regards to life insurance policies?
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Owned by the policyholders.
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What is the "Human Life Value Approach" when determining the amount of personal life insurance needed?
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This approach is a measure of the actual future earnings and services of a person at risk in the event of premature death.
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What is the "Needs Analysis Approach" when determining the amount of personal life insurance is needed?
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This approach determines a need for coverage upon the premature death of an individual.
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What is Capital Liquidation?
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Assumes both principal (capital) and interest are liquidated over the relevant time period to provide the required income for the dependents.
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What is Capital Retention/Conservation?
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Assumes the desired income will be generated by the investment earnings only, thus retaining or conserving the principal or capital invested.
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What are some the advantages of having a Buy/Sell Agreement?
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It is legally enforceable, The value of the business is previously agreed upon, and it is an immediate and automatic method of transferring the deceased's interest.
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What are some of the disadvantages of NOT have a Buy/Sale Agreement?
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Income to surviving family members stops, Surviving business owner(s) may suffer a loss of income, Asset reduction due to forced liquidation, The estate transfer may be delayed due to a forced business liquidation, Share(s) of ownership transfer to surviving relatives.
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Name the two types of Buy/Sell Agreements.
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Cross Purchase Plan and Entity Plan.
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What is a Cross Purchase Plan?
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Used when parties purchase life insurance on each other or the employer.
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What is an Entity Plan?
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Used when the business owns the policies on the parties and is the designated beneficiary for each contract participant.
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