Rhode Island Life Insurance Practice Exam

Which type of plan allows an employer to give money to an employee for buying a life insurance policy and also permits the employee to select the beneficiary?

1. Group life insurance plan

2. Whole life plan

3. Split-dollar plan

4. Universal life plan

The correct answer is: Split-dollar plan

The split-dollar plan is a unique arrangement in which an employer contributes funds toward a life insurance policy for an employee, allowing the employee to purchase coverage while also having the ability to choose the beneficiary of the policy. This structure typically involves a shared cost, where the employer may pay a portion of the premiums, and the employee is responsible for the remaining costs. As a result, the employee has substantial control over the policy, including the selection of the beneficiary, which distinguishes it from other types of plans. In contrast, a group life insurance plan generally involves coverage provided to a group of employees through their employer, where the employer typically pays the premiums and selects the beneficiaries, providing less individual control to the employees. Whole life and universal life plans are types of permanent life insurance that the individual buys and manages independently, without employer contributions or shared arrangements. Thus, these options do not meet the specific criteria of employer contributions and employee beneficiary selection as effectively as a split-dollar plan.