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Which is true about disability buy-sell insurance policies?
Suggested Answer: C
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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.
26 comments · newest first
TO
Tomoko
3 months ago
D is misleading. Premiums aren't usually tax-deductible for individuals.
CH
Chantell
3 months ago
A seems off. The policyowner can be the beneficiary, right?
BE
Bettye
3 months ago
I agree, C makes sense. Helps with financial planning.
IL
Iluminada
4 months ago
I think C is true. Tax-free benefits are a big plus.
DA
Daniel
5 months ago
D is not usually true, premiums are generally not tax-deductible.
AN
Andrew
5 months ago
I agree with C, but B seems off; the insurer pays the business, not the individual.
TA
Tamesha
5 months ago
Wait, are the premiums really tax-deductible? I thought they weren't.
EL
Elina
6 months ago
A is misleading, the policyowner can be the beneficiary.
BU
Burma
6 months ago
C is definitely true, tax-free benefits are a big plus!
LA
Layla
6 months ago
Wait, the policyowner may not be the beneficiary? That's just plain weird. Option A is clearly the way to go here.
LE
Leeann
6 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.
SA
Samira
6 months ago
The insurer paying the benefits to the disabled individual makes sense. Option B seems like the right choice.
LE
Lelia
6 months ago
I'm pretty sure the premiums are also tax-deductible. Option D sounds right to me.
CA
Cassi
7 months ago
Option C is the correct answer. The policy proceeds are normally received income tax-free.
BO
Boris
7 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.
DE
Delbert
7 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.
LE
Leandro
8 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.
IN
Ines
8 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.
MA
Marya
8 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.
EL
Elliott
8 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.
CA
Catherin
8 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!
AR
Arlette
9 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...
DE
Delmy
9 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.
KR
Kristin
2 months ago
What about the policyowner and beneficiary? Is that a common issue?
MA
Marti
3 months ago
Actually, I believe the proceeds are usually received income tax-free.
DO
Dong
3 months ago
I think the premiums are tax-deductible.