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Virginia Insurance Virginia Life Annuities and Health Insurance Exam - Topic 7 Question 2 Discussion
Topic #: 7
Which is true about disability buy-sell insurance policies?
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.
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