Corporation Stock Purchase Plan
Same as term Close Corporation Plan: prior arrangement for surviving stockholders to purchase shares of a deceased stockholder according to a predetermined formula for setting the value of the corporation. Often, the best source for its funding is a life insurance policy in either of these forms: (1) Individual Stock Purchase Plan (Cross Purchase Plan), much like the partnership cross purchase plan. Each stockholder buys, owns, and pays the premium for insurance equal to his/her share of the agreed purchase price for the stock of the other stockholders. (2) Corporation Stock Purchase Plan (Stock Redemption Plan), similar to the partnership entity plan is a better choice if the number of stockholders is large. The corporation purchases and pays the premiums on the amount of insurance needed to purchase the decreased stockholder's interest at the price set by the predetermined formula. These premiums are not tax deductible as a business expense, but the death benefits are not subject to income tax. Life insurance owned by the corporation is listed as an asset on the corporation's balance sheet. Ownership of life insurance on the stockholders thus increases the corporation's net worth, and if permanent insurance is purchased, its cash value would be available for loans in the event of business emergencies.
Popular Insurance Terms
Provision that holds a re-insurer liable for its share of losses even if the ceding company becomes insolvent before paying these losses. For example, XYZ Insurance Co. writes a fire policy ...
Canadian retirement plan much like U.S. individual retirement account (IRA). Here, an employee can contribute on a tax deductible basis C $3500 each year as a member of an employer pension ...
Buying a home or investing in a commercial property in the United States implies complex legal clauses. Perhaps one of the most perplexing ones is the noncontribution mortgage clause. If ...
Forced entry into premises. Coverage is provided under various property insurance contracts such as homeowners and special multiperil insurance (SMP). ...
Protection to maintain the value of a business in case of death or disability of a partner. Upon the death or long-term disability of a partner, insurance can provide for the transfer of a ...
Type of derivative traded on the Chicago Board of Trade that takes the form of an option on a catastrophe futures contract using a call-option spread as the basis for the contract. The ...
Plan initiated by the pension benefit guaranty corporation (PBGC) upon the involuntary termination of a pension plan. With the concurrence of the United States District Court, the PBGC ...
Automatic protection for an insurer against losses that exceed a predetermined loss limit. This reinsurance may be subdivided into three primary types: excess of loss, catastrophe loss, and ...
Form that provides insurance coverage for the insured in the event the damage or destruction of non-owned property reduces or terminates the insured's earnings. For example, if the insured ...
Have a question or comment?
We're here to help.