What best describes an Entity Plan?

What best describes an Entity Plan?

• A. The policy is owned by the business's employees.
• B. The business owns the policies on the parties and is the designated beneficiary for each contract participant.
• C. The premiums are paid by the insurer.
• D. The employee is both owner and beneficiary.

Answer: (A)

Entity Plan describes a situation where the employer holds ownership of the life insurance on the lives of its employees. The business (as the entity) owns the policy, pays the premiums, and the policy generally serves the company’s interests (such as funding buy-sell agreements or protecting against loss of a key person). The insured individuals are the employees, but ownership rests with the business rather than with any single employee. This setup keeps the policy as a corporate asset and aligns the plan with the company’s needs rather than with individual employee ownership. That helps explain why this option is the best fit: it focuses on who holds ownership—the business as an entity—rather than ownership by an individual. The other choices conflict with how entity plans are typically structured, such as premiums being paid by the insurer, or the employee being both owner and beneficiary, or the business owning a policy on the employees but not describing the corporate ownership correctly.

Entity Plan describes a situation where the employer holds ownership of the life insurance on the lives of its employees. The business (as the entity) owns the policy, pays the premiums, and the policy generally serves the company’s interests (such as funding buy-sell agreements or protecting against loss of a key person). The insured individuals are the employees, but ownership rests with the business rather than with any single employee. This setup keeps the policy as a corporate asset and aligns the plan with the company’s needs rather than with individual employee ownership.

That helps explain why this option is the best fit: it focuses on who holds ownership—the business as an entity—rather than ownership by an individual. The other choices conflict with how entity plans are typically structured, such as premiums being paid by the insurer, or the employee being both owner and beneficiary, or the business owning a policy on the employees but not describing the corporate ownership correctly.