West Virginia State Life Insurance Practice Exam

What life insurance policy would provide a payout if a partner in a business dies?

1. Term life insurance

2. Whole life insurance

3. Endowment policy

4. Universal life insurance

The correct answer is: Term life insurance

The appropriate policy that would provide a payout if a partner in a business dies is term life insurance. This type of insurance offers coverage for a specified period, or "term," and pays a death benefit to beneficiaries if the insured individual passes away during that time. In the context of a business partnership, term life insurance can be used as a crucial financial tool for ensuring that the surviving partner can buy out the deceased partner's share of the business. This is often facilitated through a buy-sell agreement, allowing the surviving partner to receive a lump sum from the insurer that can be utilized to purchase the deceased partner's interest in the business, thus maintaining business continuity. Whole life insurance, on the other hand, provides coverage for the insured's entire life and has a savings component, but it may not be as cost-effective for short-term needs in a business context. An endowment policy pays out both at the end of a specified term and upon the death of the insured but is not commonly used in partnership scenarios due to its complexity and cost. Universal life insurance, while flexible in terms of premiums and death benefits, still functions similarly to whole life insurance and may not serve the immediate financial needs present in a business death situation as effectively as term life insurance