Question

Watson, inc. has four equal partners. all four partners are interested in entering into a buy-sell arrangement. How many life insurance policies would be purchased to properly fund using a cross purchase agreement

A. 4 policies
B. 6 policies
C. 8 policies
D. 12 policies

Answer 1

A total of 12 policies would be purchased to properly fund the buy-sell arrangement using a cross-purchase agreement.

Step-by-step explanation:

In a cross purchase agreement, each partner purchases a life insurance policy on the lives of the other partners. This ensures that if one partner were to pass away, the surviving partners would receive a payout from the insurance policy to buy out the deceased partner's share.

In this case, since Watson, Inc. has four equal partners, each partner would need to purchase a policy on the other three partners. So, the number of life insurance policies that would be purchased to properly fund the buy-sell arrangement would be:

• Partner 1 purchases policies on Partner 2, Partner 3, and Partner 4
• Partner 2 purchases policies on Partner 1, Partner 3, and Partner 4
• Partner 3 purchases policies on Partner 1, Partner 2, and Partner 4
• Partner 4 purchases policies on Partner 1, Partner 2, and Partner 3

Therefore, a total of 12 policies would be purchased to properly fund the buy-sell arrangement using a cross purchase agreement.