Which of the following is NOT a personal use of life insurance?

Which of the following is NOT a personal use of life insurance?

• A. An individual buys insurance for a mortgage.
• B. An individual buys insurance to fund a buy-sell agreement.
• C. An individual buys insurance for income replacement.
• D. An individual buys insurance for estate planning.

Answer: (B)

The option indicating that buying insurance to fund a buy-sell agreement is not a personal use of life insurance is based on the nature of buy-sell agreements. These agreements are typically used in a business context to facilitate the transfer of ownership interest upon the death of a business owner, thereby ensuring continuity of the business. The life insurance policy in this scenario is intended to protect the business and its remaining owners rather than serving as a personal benefit to the individual policyholder. In contrast, the other scenarios outlined pertain directly to personal situations. Buying insurance for a mortgage offers personal financial protection against the loss of a home due to unforeseen circumstances. Purchasing insurance for income replacement directly supports an individual's standard of living for their dependents if they were to pass away. Similarly, using insurance for estate planning helps manage the distribution of one's wealth upon death, thus impacting the policyholder’s personal financial legacy. Consequently, the distinction lies in the primary purpose of the insurance. Personal uses typically benefit individuals and their families, while a buy-sell agreement serves a business need, marking it as an exception in this context.

The option indicating that buying insurance to fund a buy-sell agreement is not a personal use of life insurance is based on the nature of buy-sell agreements. These agreements are typically used in a business context to facilitate the transfer of ownership interest upon the death of a business owner, thereby ensuring continuity of the business. The life insurance policy in this scenario is intended to protect the business and its remaining owners rather than serving as a personal benefit to the individual policyholder.

In contrast, the other scenarios outlined pertain directly to personal situations. Buying insurance for a mortgage offers personal financial protection against the loss of a home due to unforeseen circumstances. Purchasing insurance for income replacement directly supports an individual's standard of living for their dependents if they were to pass away. Similarly, using insurance for estate planning helps manage the distribution of one's wealth upon death, thus impacting the policyholder’s personal financial legacy.

Consequently, the distinction lies in the primary purpose of the insurance. Personal uses typically benefit individuals and their families, while a buy-sell agreement serves a business need, marking it as an exception in this context.