Virginia Insurance Virginia Life, Annuities, and Health Insurance Examination Series 1101 Exam - Topic 7 Question 2 Discussion

Actual exam question for Virginia Insurance's Virginia Life, Annuities, and Health Insurance Examination Series 1101 exam

Question #: 2
Topic #: 7

[All Virginia Life, Annuities, and Health Insurance Examination Series 1101 Questions]

Which is true about disability buy-sell insurance policies?

AThe policyowner may not be the beneficiary

BThe insurer pays the benefits to the disabled individual

CThe policy proceeds are normally received income tax-free

DThe premiums are tax-deductible

Show Suggested Answer

Suggested Answer: C

Disability buy-sell insurance funds a business partner's buyout if one becomes disabled, per Virginia Code 38.2-3100 et seq. Option C is true; proceeds are typically tax-free under IRC 104(a)(3) as insurance benefits, not income, if premiums aren't deducted. Option A is false; the policyowner (e.g., a partner or business) is often the beneficiary to fund the buyout. Option B is false; benefits go to the business or partner, not the disabled individual, who may receive separate disability income coverage. Option D is false; premiums aren't tax-deductible (IRC 265), preserving tax-free proceeds. The study guide likely explains this with scenarios---e.g., $500,000 paid tax-free to buy out a disabled partner---highlighting tax treatment, making C the true statement.

by Latosha at Jan 26, 2026, 11:07 AM

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Daniel

15 days ago

D is not usually true, premiums are generally not tax-deductible.

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Andrew

20 days ago

I agree with C, but B seems off; the insurer pays the business, not the individual.

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Tamesha

26 days ago

Wait, are the premiums really tax-deductible? I thought they weren't.

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Elina

1 month ago

A is misleading, the policyowner can be the beneficiary.

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Burma

1 month ago

C is definitely true, tax-free benefits are a big plus!

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Layla

1 month ago

Wait, the policyowner may not be the beneficiary? That's just plain weird. Option A is clearly the way to go here.

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Leeann

2 months ago

Disability buy-sell insurance policies? Sounds like a real snooze-fest. I'd rather buy a policy that covers my addiction to cat videos.

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Samira

2 months ago

The insurer paying the benefits to the disabled individual makes sense. Option B seems like the right choice.

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Lelia

2 months ago

I'm pretty sure the premiums are also tax-deductible. Option D sounds right to me.

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Cassi

2 months ago

Option C is the correct answer. The policy proceeds are normally received income tax-free.

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Boris

2 months ago

I remember discussing that the insurer pays the benefits to the business, not the individual, so I think option B is definitely incorrect.

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Delbert

2 months ago

I'm a bit confused about the tax-deductibility of premiums. I thought they were usually not deductible for personal policies, but I could be wrong.

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Leandro

3 months ago

I feel like I've seen a question like this before, and I think option C might be correct since many insurance benefits are tax-free.

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Ines

3 months ago

I think the policyowner can be the beneficiary, but I'm not entirely sure. I remember something about that from our last review session.

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Marya

4 months ago

Disability insurance can get complicated, but I've got a strategy. I'll eliminate the options that don't sound right, then choose the one that best fits what I know about these policies.

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Elliott

4 months ago

Ah, I remember learning about these in class. I'm pretty confident I know the right answer, but let me double-check my notes just to be sure.

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Catherin

4 months ago

This looks like a tricky one. I'll need to carefully consider each option and think about the typical characteristics of disability buy-sell policies. Time to put on my thinking cap!

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Arlette

4 months ago

Okay, I think I've got a handle on this. The key is to focus on the tax implications - that's usually a big factor with insurance policies. Let me think this through...

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Delmy

4 months ago

Hmm, I'm not too familiar with disability buy-sell insurance policies. I'll need to review the key features of these types of policies to determine the correct answer.

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