MR. WATSON: Incidentally, these options only apply to the cash value policy itself, all riders such as any extra term or accidental death benefits are dropped at that time. When you select one of these options, all riders drop off.

MR. WATSON: Once again, to review, you have three nonforfeiture options.

MR. WATSON: With an ordinary policy, when are the cash values required to be present? At least when?

ALL: Three years.

MR. WATSON: Three years. So the minute cash value is established, these three non-forfeiture options apply:

• Cash it in, you have no insurance but you get your cash;
• Reduced paid-up policy; paid up forever but for a reduced amount; a smaller amount of insurance;
• Extended term; turn the whole life policy into a term policy, and use your cash value to pay it as far into the future as you possibly can, for the same amount of insurance. Got it?

ALL: Um-hmm.

 

Can you answer these?

MR. WATSON: If I want to maximize my death benefit, which option shall I choose?

ALL: Extended term.

MR. WATSON: Does everybody agree?

WOMAN: No. What happens if you live past 16 years? So I say it's reduced paid-up.

MR. WATSON: She says reduced paid-up. So a lady comes to you and says, "I want to maximize my death benefit." You look at her and say, "Okay, let's reduce it." "Maximize" and "reduce" do not go in the same sentence. If I want the maximum amount of marbles and you tell me you are going to reduce them, we have a problem.

MR. WATSON: Maximum - which one gives me the maximum amount of death benefit?

ALL: Extended term.

WOMAN: Unless you die after 16 years, then there is no insurance.

MR. WATSON: But I didn't ask that. Be very careful. Very important. This is typical of the exam. You understand?

WOMAN: Yes.

 

Another one

MR. WATSON: Sally lost her job. Times were hard, very, very hard. She needs as much insurance as she's ever needed. She wants to maximize her death benefit by selecting a non-forfeiture option. Which of the following non-forfeiture options should Sally select?

ALL: Extended term.

 

One more

MR. WATSON: Another great question: "Which of the following non-forfeiture options would give me the greatest amount of protection while still generating cash value?"

WOMAN: Reduced paid-up

MR. WATSON: Yep. Because extended term has no cash value, it is now a term policy

 

Last one

MR. WATSON: Another challenge. A $100,000 whole life policy with a $50,000 term rider.

MR. WATSON: That's a term rider. If I die while that's in existence, my beneficiary would receive $150,000. $100,000 from the whole life and $50,000 from the term rider.

MR. WATSON: But what if I elect one of the non-forfeiture options? Let's say I elect extended term. That extended term will provide me protection for seven years 105 days. I'm just making up numbers.

MR. WATSON: If I die within the seven years 105 days, how much will my beneficiary receive? Would they receive $150,000? Would they receive $100,000? What's the answer?

ALL: ????

MR. WATSON: They would receive $100,000. Non-forfeiture options only apply to what? Cash value insurance. Not the term. So what's my point? All supplementary term riders drop off when you elect a non-forfeiture option. Does that make sense?

ALL: Yes.

MR. WATSON: So if you have any riders when you select a non-forfeiture option, they drop off. Please be careful with that. Non-forfeiture options only apply to the cash value part of the insurance.