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15 Cards in this Set

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  • Back
What is a Buy/Sell Agreement?
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.
What is a nonparticipating (nonpar) policy?
Insurance policies which do not pay dividends to policyowners.
What is a participating (par) policy?
Policies that may pay annual dividends to policyowners.
What is pure risk?
The difference between the cash value and the face value.
What is the face value of a policy?
The death benefit.
What does the term "mutual" mean in regards to life insurance policies?
Owned by the policyholders.
What is the "Human Life Value Approach" when determining the amount of personal life insurance needed?
This approach is a measure of the actual future earnings and services of a person at risk in the event of premature death.
What is the "Needs Analysis Approach" when determining the amount of personal life insurance is needed?
This approach determines a need for coverage upon the premature death of an individual.
What is Capital Liquidation?
Assumes both principal (capital) and interest are liquidated over the relevant time period to provide the required income for the dependents.
What is Capital Retention/Conservation?
Assumes the desired income will be generated by the investment earnings only, thus retaining or conserving the principal or capital invested.
What are some the advantages of having a Buy/Sell Agreement?
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.
What are some of the disadvantages of NOT have a Buy/Sale Agreement?
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.
Name the two types of Buy/Sell Agreements.
Cross Purchase Plan and Entity Plan.
What is a Cross Purchase Plan?
Used when parties purchase life insurance on each other or the employer.
What is an Entity Plan?
Used when the business owns the policies on the parties and is the designated beneficiary for each contract participant.