Life Insurance Basics
A company insures its chief engineer, paying the premiums and naming itself beneficiary. What is the purpose of that arrangement?
Answer and explanation
Answer: A. Key person insurance compensates the business for the disruption a key employee's death causes, including lost profits and the cost of recruiting a successor. Family income, buy-sell funding and deferred compensation are separate arrangements with different ownership and beneficiary designations.Source: PSI — New York DFS Insurance Candidate Information Bulletin — Outline, key person insurance
More life insurance basics questions
- During policy delivery, the owner notices a typo in the beneficiary's middle name. How should the producer assist?
- From what event does the free look period on a delivered life policy run?
- How does a business use the death benefit it receives from a key person policy?
- How does a cross-purchase buy-sell agreement use life insurance?
- How does an attending physician statement differ from a medical examination arranged by the insurer?
- How does an insurer usually issue a policy to an applicant classified as substandard?
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