Business Insurance and Financial Planning
Core concepts
Business planning questions test how insurance supports continuity and compensation. Buy-sell agreements are either cross-purchase (each owner buys the others' interests) or entity/stock redemption (the business buys back). Funding, valuation method, triggers (death, disability, retirement, divorce), and basis consequences matter. Key-person insurance is owned by and payable to the business; premiums are generally not deductible. Split-dollar, deferred compensation, and executive bonus (Section 162) arrangements differ sharply on deductibility and taxation. Property-casualty basics include BOP eligibility, commercial general liability, umbrella, business income, and the coinsurance clause. Financial planning content includes the planning process, risk management, retirement plan types, and estate tools: wills, trusts, probate, the annual gift exclusion, marital deduction, and ILITs.
Traps
Cross-purchase with n owners requires n(n−1) policies; entity redemption requires n. Key-person premiums are not deductible, and proceeds, while generally income-tax-free, can raise corporate AMT or estate inclusion issues. Coinsurance penalties apply when the limit falls below the required percentage of value. A Section 162 bonus is deductible to the employer and taxable to the employee.
Rule of thumb
Count policies before answering: three owners mean cross-purchase 3 × 2 = 6 policies, while entity redemption means 3.