Massachusetts Life Producer Practice Exam

XYZ Corp gives money to an employee to purchase a life insurance policy and allows the employee to select the beneficiary. What kind of plan is this?

1. Key Person Insurance

2. Group Life Insurance

3. Split-Dollar Plan

4. Universal Life Plan

The correct answer is: Split-Dollar Plan

The situation described involves XYZ Corp providing funds to an employee specifically to purchase a life insurance policy, while allowing the employee the freedom to choose the beneficiary. This setup aligns with the characteristics of a split-dollar plan. In a split-dollar plan, two parties (often an employer and an employee) share the costs and benefits of a life insurance policy. Typically, the employer pays a portion of the premium, and the employee either reimburses the employer for part of the premium or pays the remaining portion. Importantly, the employee has control over the selection of the beneficiary, which is a hallmark of this arrangement, as it solidifies the employee's personal interest in the insurance policy. Key Person Insurance is primarily focused on protecting a business from the loss of a critical employee by providing funds to the company, rather than benefiting the employee directly. Group Life Insurance involves policies that cover multiple employees under one contract, where typically the employer is the owner and pays the premiums, and beneficiaries may not be selected by the individual employees. A Universal Life Plan is a specific type of permanent life insurance that includes flexibility in premium payments and death benefits but does not inherently describe the employer-employee resource sharing that characterizes a split-dollar agreement. Thus, the arrangement described clearly