TOOLS & TECHNIQUES OF LIFE INSURANCE PLANNING



TOOLS & TECHNIQUES OF EMPLOYEE BENEFIT AND RETIREMENT PLANNING

11th Edition

College Course Materials

Deanna L. Sharpe, Ph.D., CFP®, CRPC®, CRPS®

Associate Professor

CFP® Program Director

Personal Financial Planning Department

University of Missouri-Columbia

Please Note: Correct answers for each question are indicated in bold type. After each question, the number of the page containing information relevant to answering the question is given. When a calculation is necessary or the reasoning behind a given answer may be unclear, a brief rationale for the correct answer is also given.

Part B: Employee Benefit Planning

Overview

Chapter 29: Designing the Right Life Insurance Plan

True/False

29.1 A profit share plan may provide some death benefits.

29.2 Life insurance as an employee benefit can meet capital accumulation needs as well as provide death benefits for employees

29.3 A life insurance contract can be used as a “golden handcuffs” offer to an executive.

Answers:

29.1 true [p. 263]

29.2 true [p. 263]

29.3 true [p. 264]

Multiple Choice

29.4 Employer plans that can provide a death benefit to an employee’s beneficiaries include:

a. pension plans

b. profit share plans

c. split dollar life plans

d. all of the above

e. only a and c

Answer: D [p. 263]

29.5 Common objectives of employer-provided life insurance include all but which of the following:

a. life insurance protection at the lowest cost

b. as an employee incentive to increase company profitability

c. to retain executive leadership

d. provide a means of business transfer

e. provide an estate for beneficiaries of young employees

Answer: B [pp. 263 - 264]

29.6 Which of the following employer-provided life insurance plans allows recovery of employer dollars used for the life insurance product?

a. split dollar life

b. bonus insurance

c. insurance in a qualified plan

d. insurance financing of nonqualified deferred compensation plan

e. death benefit only plan

Answer: A [p. 265]

Application

29.7 Randall and Jake Tobias are brothers who own RJ’s Beanery, a local lunch café. The two brothers are discussing their need to arrange for transfer of their closely held business interest if either brother dies. Which step of the life insurance planning process are the brothers exemplifying?

a. identify insurance needs

b. fund capital accumulation needs

c. analyze existing plans

d. identify objectives

e. monitor progress

Answer: A [p. 263]

29.8 Unique Boutique is a dress and accessory shop owned and operated by two sisters, Donna and Barbara Quinten. The sisters opened the shop 10 years ago when they were in their mid-thirties. The store has done well and is now turning a profit every year. Last year, Donna’s best friend died of breast cancer, turning Donna’s thoughts to how would the business go forward if she or her sister became gravely ill or died. Donna and Barbara have met with you, their financial advisor, to discuss business succession planning. The sisters brought in copies of their personal life insurance policies as well as the specifications of the profit sharing plan that they started five years ago. Which step of the life insurance planning process are the sisters exemplifying?

a. identify insurance needs

b. fund capital accumulation needs

c. analyze existing plans

d. identify objectives

e. monitor progress

Answer: C [p. 263]

29.9 Martha Towers, owner of Tower Engineering, wants to utilize life insurance in the employee benefits of the business. She wants a product that will give her a tax deduction for the part that she pays out. Which of the following life insurance tools will not meet her objective?

a. split dollar life

b. bonus insurance

c. insurance in a qualified plan

d. insurance financing of nonqualified deferred compensation plan

e. death benefit only plan

Answer: A [p. 265]

29.10 Charles Hopkins, owner of several Pizzaria shops in Kansas City, wants an insurance planning tool that will generate no taxable income to his employees when premiums or benefits are paid. Which of the following life insurance tools will meet his objective?

a. death benefit only plan

b. bonus insurance

c. insurance in a qualified plan

d. a and b

e. a and c

Answer: A [p. 265]

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