Buy-Sells
What is the primary purpose of a buy-sell agreement?
To facilitate the orderly transfer of a business interest
What is the primary purpose of key person protection using life insurance?
To protect the business against the financial loss associated with the death of a key individual
What is the primary goal of business succession planning?
Ensuring a smooth transition of leadership and ownership
What is the primary purpose of life insurance underwriting?
To assess the risk associated with insuring an individual
What are key characteristics of term life insurance?
- It provides coverage for a specific term or duration
- It is typically less expensive than permanent life insurance
Who are typically parties involved in a buy-sell agreement?
Business partners or co-owners
Who is typically the beneficiary of a key person life insurance policy?
The business or employer
Name the two types of underwriting components to business cases:
Medical and Financial underwriting.
Name 3 factors considered in life insurance underwriting?
- Medical history
- Tobacco
- Hobbies, avocations
- Occupation and income
- Credit
What can be done with accumulated cash value accumulation in a permanent life insurance policy?
Make premium payments, borrow it, or make withdrawals.
Which type of buy-sell agreement involves the business itself purchasing the departing owner's interest?
Entity Purchase or Stock Redemption agreement
How does key person life insurance benefit a business in the event of the key person's death?
By helping the business recover from financial losses and disruptions
How does life insurance contribute to business succession planning?
By funding the buyout of a deceased owner's interest
What is a medical examination used for in life insurance underwriting?
To assess the applicant's overall health and potential risk
What happens to the premiums paid in term life insurance at the end of the policy term?
They are forfeited to the insurance company
In a cross-purchase buy-sell agreement, who typically buys the departing owner's interest?
The remaining business partners
What type of life insurance policy is commonly used for key person protection?
Term life insurance
What is the name of the buy-sell agreement where an individual owner, intends to sell to a non-owner, employee or family member:
One-way buy-sell.
Name the top 4 life insurance rate classes?
- Preferred Best NT
- Preferred NT
- Standard Plus NT
- Standard NT
What type of policy is used when using key person protection to RETAIN a key employee?
Permanent.
A buy-sell agreement helps ensure a smooth transition of ownership in the event of what three triggering events ?
Death, disability, or retirement.
What type of life insurance policy is used to help retain or incent a key employee to stay with the company?
Permanent
How are the coverage limits for a buy-sell agreement determined?
Business Valuation
What is the death benefit issue limit rule of thumb for key person protection?
10-15 times annual income.
Which type of life insurance allows for potential cash value growth?
Whole life insurance, Universal life insurance, Variable life insurance