MAN: What controls the rate of depreciation?

MR. WATSON: It is tied to the amortization of the loan. If it's a 4 percent note, they will tie a policy that decreases the same way.

WOMAN: So this decreasing term insurance is designed to attach it to a mortgage?

MR. WATSON: To cover a decreasing need.

WOMAN: Okay. All right.

MR. WATSON: A car loan, a boat loan. We find out what the amortization schedule is on your note and then we match the policy to it. You have a question?

MAN: Yes. Is all that money tax-free?

MR. WATSON: Yes. Life insurance benefits are tax-free. Somebody said their wife is getting ready to have a baby. Who was that? You have a young family?

WOMAN: Yes.

MR. WATSON: How old is your baby?

WOMAN: Three.

MR. WATSON: With young families starting out, if her husband should die, she has 20 years with this child. The family's need is longer. They can't use decreasing term. That's why people buy level term.

MR. WATSON: When her husband dies she has a need for half a million dollars, needs it for at least 20 years. Don't we want to replace her husband's income if he dies, send the kids to school? Does that make sense? So you use a level term policy in that case.

MAN: I have a quick question. Is there any way to set up a life insurance policy so that an amount is given yearly?

MR. WATSON: Sure.

MAN: So you could set it up so that the beneficiary gets $30-40,000 a year for X amount of time?

MR. WATSON: Yes, you will see that later. Chapter 8. They can structure it, if her husband died, so the company would pay her in a lump sum, or pay it out in periodic payments. Many different ways you can do it.

MAN: What does the company do with the interest?

MR. WATSON: They pay out the interest. Now, the portion representing principal, the death benefit, is tax-free. The portion representing interest will be taxable. We will learn that too, Chapter 8. Good questions.