Certified Financial Consultant (CFC) Practice Exam

What form of insurance could be used as a nonqualified employee benefit for an executive?

1. Term insurance

2. Whole life insurance

3. Variable life insurance

4. All types of insurance

The correct answer is: All types of insurance

The correct answer highlights that all types of insurance can be used as a nonqualified employee benefit for an executive. Nonqualified employee benefits are arrangements that do not qualify for favorable tax treatment under the Internal Revenue Code. They provide employers with flexibility in terms of structure and implementation, as well as the opportunity to tailor benefits specifically for high-level executives. Term insurance, whole life insurance, and variable life insurance all offer unique features that can be advantageous in a nonqualified benefit plan. Term insurance provides death benefits but has no cash value, which may appeal to companies looking to minimize costs. Whole life insurance offers both a death benefit and a cash value component, enabling executives to accumulate savings on a tax-deferred basis. Variable life insurance allows policyholders to invest the cash value in various investment vehicles, potentially leading to greater returns while providing a death benefit. Since these insurance products can be structured to meet the specific needs of executives and forgo many regulations associated with qualified plans, they are all viable options for nonqualified employee benefits. This versatility makes each type suitable depending on the organization's objectives and the executives' financial goals.