Accelerated Benefits Provision ****

MR. WATSON: Once again, who can explain an accelerated benefit rider? All of you can. Go ahead.

MAN: If you are terminally ill, the insurance company will pay you, like, three-quarters of it or a good amount of it, and when you die your beneficiary will get the rest.

MR. WATSON: Everybody hear that?

ALL: Yes.

MR. WATSON: This is a standard provision in most policies at no extra cost. What's the difference between that and a viatical?

MAN: I don't know.

WOMAN: The viatical is when someone buys your policy for a discounted rate. If the policy is $100,000, someone might buy it for $75,000, so they can make a profit when the insured dies.

MR. WATSON: Very good. So in this case you’re the investor, because you are buying an existing life insurance policy from this guy over here, the policy-owner. The investor is called a viatical company (must have a life insurance license) and the consumer a viator, that’s the original policy owner.

MR. WATSON: But this time, when the insured person dies, the viatical company gets the entire death benefit and the original beneficiary gets nothing.

MR. WATSON: With accelerated death benefits the original policy owner keeps the policy and the beneficiary gets what is left of the benefit when the insured dies. With viatical settlements, the original policy owner no longer owns the policy. Instead, it is owned by the viatical settlement company and that company gets the whole death benefit with the insured dies. Be careful.

MR. WATSON: Y'all good? It's a business transaction with a viatical.

Note: There are no taxes owed for an accelerated benefit payable to someone with a terminal illness. With Viatical, the person selling the policy (called the viator) receives the money tax free. The person buying the policy from the viator pays ordinary income taxes only on the gain.

 

Automatic Premium Loan****

• Protects the insured from unintentional lapse
• Becomes a loan against the policy

MR. WATSON: Automatic premium loan provision . This is easy. Automatic premium loan. No charge for this rider. If you checked this box during the initial application, you were giving the insurance company authorization to automatically take a loan against your cash value and pay the premium in the event your policy is in danger of lapsing. It prevents unintentional lapse. It does not cost any additional premium for this benefit. Like bank overdraft protection. Does that make sense? So can I add this on to term policies?

MAN: No, there are no cash values.

MR. WATSON: That's right. Term policies have no cash value, so you can not have an automatic premium loan on them.

 

Policy Exclusions ****

MR. WATSON: Okay. Why do we have exclusions in a life insurance policy?

MAN: Premium rates would be much higher. If there were no exclusions, premium rates would be much higher.

MR. WATSON: Very good. The premiums for everybody would be much higher. Exclusions are for:

• War, declared or undeclared.
• Aviation. We are not talking about you flying in a 747. We are talking about you folks that fly over my neighborhood in a trash can that you made in your garage. Maybe a student pilot. It limits the risk to the insurance company.
• Hazardous occupation or hobbies. What's a hazardous occupation? Crabber.
• Commission of a felony.
• And suicide. What about that? Will it pay?

MAN: Only after two years.