New Jersey Life Producer Practice Exam

An agreement to purchase a deceased partner's share of a business using life insurance proceeds is termed what?

1. Buy-sell agreement

2. Chattel mortgage

3. Business partnership agreement

4. Immediate agreement

The correct answer is: Buy-sell agreement

The correct term for an agreement to purchase a deceased partner's share of a business using life insurance proceeds is a buy-sell agreement. This type of agreement is specifically designed to facilitate the transfer of ownership interests in a business when a partner passes away or becomes incapacitated. By utilizing life insurance, the business ensures that sufficient funds are available to buy out the deceased partner's share, thus providing financial security and continuity for the remaining partners and the business itself. In contrast, a chattel mortgage refers to a loan secured by movable personal property, which does not apply in this scenario. A business partnership agreement is a broader term that outlines the terms and conditions of the partnership itself but does not specifically address the handling of a partner's death. An immediate agreement does not pertain to any standard legal terminology related to business ownership transitions or life insurance usage in this context. Thus, a buy-sell agreement is the most fitting and relevant choice for this situation.