Delayed Payment Provision****

• allows the company to delay payment of cash values/loans/cash surrenders for up to six (6) months
• does not apply to death benefits, they must be paid immediately

MR. WATSON: During the Depression, people got scared and they made a run on the banks. Trying to get their money. Remember reading about it?

MR. WATSON: To prevent that happening with insurance companies, they put in what is called a delayed payment provision. They can make you wait up to six months to send you your cash value if you want to borrow money or cash it in. Got it?

MR. WATSON: Look, I died. How long can they make my wife wait until they send her the death benefit?

ALL: Six months.

MR. WATSON: Nope!

MR. WATSON: They must pay the death benefit immediately! This six months only applies to what? Cash value. I was asking her about what? Death benefit. Y'all with me?

ALL: Oh.

 

Dividends ****

MR. WATSON: If you recall, a stock company charged you $100 for a policy. A mutual company charged you $100 for the same policy, but they tacked on an extra $20 to cover unexpected expenses. For a total of $120. So, participating policies will normally have slightly higher premiums than non-participating policies. Remember, policy dividends are not really dividends, they are a return of your premium and are not taxed. Do y'all agree?

ALL: Yes.

MR. WATSON: Dividends are NOT guaranteed and there must be a clear statement referencing this on any proposals. They usually become payable at the end of the first or second year.

MR. WATSON: What happens to those dividends? What can you do with those dividends? We have dividend options, and dividend options apply to-

ALL: Dividends.

MR. WATSON: So you have a $100,000 policy and you have a premium of $2000.

MR. WATSON: And the dividend this year is $200.

MR. WATSON: What can I do with that dividend? The acronym is C.R.A.P.O.

• Cash
• Reduce the premium
• Accumulate at interest with the company (the dividend is not taxable but the interest paid on the dividend IS)
• Paid-up insurance
• One Year Term--annual renewable term

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MR. WATSON: First thing I can do is take it in cash.

MR. WATSON: Or, You can reduce the premiums. If you had a $2,000 premium-and a dividend of $200 - how much would you have to send the insurance company?

ALL: $1,800.

MR. WATSON: Leave the dividend to Accumulate with the company, and they will pay you interest. Now, this is a mutual company, guys. Look. Is the dividend taxable?

MAN: No. It's a refund.

MR. WATSON: When I leave that dividend with the company, now is it taxable?

MAN: No.

MR. WATSON: No. But, is the interest taxable? Yes. The interest is taxable. Is the dividend taxable?

ALL: No.

MR. WATSON: Is the interest taxable? Yes, the company will send you a form called a 1099 to show how much is taxable.

MR. WATSON: So the "P" stands for "paid-up insurance." The dividend buys little paid-up policies. How much would $200 buy a guy my age, age 49, of paid-up insurance? Make up a number.

MAN: A thousand dollars.

MR. WATSON: Paid-up for a thousand dollars. So if I died what would Jersey get?

ALL: A thousand dollars.

MR. WATSON: Plus, don't forget the main policy, the $100,000.

ALL: $101,000 total.

MR. WATSON: Now, next year my dividend bought another thousand dollars. So now I have $2,000 paid-up insurance, plus the $100,000 policy, the original. They are little tiny baby policies riding on top of the daddy policy. They have their own little baby cash value too. Single-premium paid-up insurance, but for little tiny amounts.

MR. WATSON: One year term insurance. What kind of term? Annual renewable term. Please listen. I used my dividend to buy what?

MAN: One year Term, annual renewable term.

MR. WATSON: We used my dividend of $200, and I tell my insurance company to buy as much one year term insurance as my dividend will buy, not to exceed the cash value.

MR. WATSON: It lasts from anniversary to next year's policy anniversary.

MR. WATSON: How much term? Here's the answer. It will buy as much as it can. My dividend will buy as much annual renewable term as it can, not to exceed the cash value. For instance, in year 5, if the cash value was $5,000, it would buy a one-year term policy for how much? $5,000. Next year, in year 6, if the cash value was now $7000, if the dividend was enough, it would buy how much one-year term?

ALL: $7,000.

MR. WATSON: In year 10, let's say the cash value was $10,000. How much would the dividend buy?

ALL: $10,000.

MR. WATSON: So, if I died in year 10, my beneficiary would receive the $100,000 face amount PLUS the One Year Term of $10,000 for a death benefit of $110,000.