West Virginia State Life Insurance Practice Exam

In a Loss-Purchase Buy and Sell agreement among three partners, how many life insurance policies are needed?

1. 3

2. 4

3. 6

4. 9

The correct answer is: 6

In a Loss-Purchase Buy and Sell agreement involving three partners, the goal is to ensure that if one partner dies, the other partners have the funds necessary to purchase the deceased partner's interest in the business. In this scenario, each partner should have a policy that covers the potential loss of their business interest. Therefore, each partner needs to take out a life insurance policy for each of the other partners. For three partners: - Partner A needs policies on Partner B and Partner C (2 policies). - Partner B needs policies on Partner A and Partner C (2 policies). - Partner C needs policies on Partner A and Partner B (2 policies). This results in a total of 2 policies per partner multiplied by 3 partners, which equals 6 life insurance policies needed in total to adequately fund the Buy and Sell agreement. Hence, having 6 policies ensures that there is enough coverage for each partner's share in the event of a death, allowing the surviving partners to purchase the deceased partner's interest without financial strain.