Accredited Wealth Management Advisor Practice Exam

Which characteristic is NOT true regarding the use of life insurance in funding deferred compensation plans?

1. Directly funds the employer's promise.

2. Offers various settlement options.

3. Death benefits can be accessed immediately.

4. Provides guarantees against business failure.

The correct answer is: Provides guarantees against business failure.

The characteristic that is not true regarding the use of life insurance in funding deferred compensation plans is that it provides guarantees against business failure. Life insurance can serve as a financial resource for funding certain obligations, such as deferred compensation, by providing death benefits or cash values that can be accessed by employers or employees under certain conditions. However, it does not inherently provide a safety net or guarantee that a company will not fail. If a business experiences financial difficulties or fails, the resources available from life insurance policies may not suffice to cover all deferred compensation obligations or to protect the business as a whole. Thus, while life insurance can be a strategic tool in financial planning and ensuring that certain commitments can be met upon an employee's death, the assumption that it guarantees the ongoing viability or operational stability of the business is misleading. In contrast, life insurance does directly fund the employer’s promise by ensuring that sufficient funds will be available to pay out benefits upon the death of the insured. Additionally, many life insurance products offer various settlement options for how benefits can be paid. Accessing death benefits is indeed possible, and these can provide immediate financial support to beneficiaries, making options A, B, and C true regarding the role of life insurance in deferred compensation plans.