CARD Q035
Three business owners each own insurance on the other owners to fund purchase of a deceased owner’s interest. What arrangement is this?
- Cross-purchase
- Executive bonus
- Credit life
- Entity-purchase
Cross-purchase
In a cross-purchase arrangement, the owners buy one another’s interests. In an entity-purchase arrangement, the business buys the deceased owner’s interest.
Why each choice is right or wrong
A. Cross-purchase
Correct. In a cross-purchase arrangement, the owners buy one another’s interests. In an entity-purchase arrangement, the business buys the deceased owner’s interest.
B. Executive bonus
Incorrect. An executive bonus supports an employee’s personal policy, not mutual owner purchases.
C. Credit life
Incorrect. Credit life is linked to debt repayment.
D. Entity-purchase
Incorrect. An entity-purchase arrangement has the business buy the interest, not the individual owners.
Review the related terms
Use these lessons to revisit the concepts and try additional practice questions.