Go Back

AD&D 3
Special Risk vs Limited Risk & Beneficiaries

Continue

Other Forms

Limited Risk Policies****

MR. WATSON: There are two other policies you might find interesting. One of them is called a limited risk policy, also known as a dread disease policy or a critical illness policy.

MR. WATSON: There are heart disease policies, airplane passengers (travel accident) policies, and cancer policies. Limited to certain named diseases or events.

MR. WATSON: Which of the above would a policy owner need to name a beneficiary?

ALL: Only the travel accident policy!

MR. WATSON: Exactly.

MR. WATSON: If you are diagnosed with a heart disease the policy will pay. They will pay like $10,000, pay for when you're hurt can't work. Pretty cool stuff.

MR. WATSON: There's airplane passenger insurance. In the past, you could go to the airport-you young guys wouldn't know this, but you could go in the airport, put a dollar in a machine, fill out the form, mail it to your house, or add it on your credit card when you buy a plane ticket, so if the plane goes down you're covered.

MR. WATSON: The other one is cancer insurance. It's the same as the heart disease policy, but it covers cancer.

WOMAN: These are all separate from any others?

MR. WATSON: Yes, they are just stand-alone policies. These are all limited-risk policies, dread-disease policies, limited to certain things. You do not have to be diagnosed as terminally ill. Does that make sense?

ALL: Yes.

 

Special Risk Policies****

MR. WATSON: The final one in this chapter is called the special risk policy. Airplane test pilot....Eric Clapton's fingers, etc. Alydar, the horse. Those are unusual things. Like an astronaut. Policies purchased through Lloyds of London.

MR. WATSON: Don't confuse these with those cancer policies and airplane passengers policies, which are "limited risk" policies and are limited to that named specific peril. Does that make sense?

ALL: Yes.

----------------------

MR. WATSON: Back to the A.D. & D. policy. Loss of body member typically is defined as actual severance from the body-though it may include loss of use. So it depends on the policy. But most policies require severance from the body. But they may pay for loss of use.

MR. WATSON: What about a stroke and I couldn't use my arm? Would it pay? No. Why wouldn't it pay, folks?

COTTON: The loss was caused by something internal.

----------------------

Beneficiary

MR. WATSON: Policy owners can name a

MR. WATSON: It depends on who is living when the insured dies. If no beneficiary is living or if one was not named, the proceeds go to the estate.

MR. WATSON: It is very important to know who must sign on the application. If the policyowner buys the insurance on themselves, then, the policyowner, (who is the insured), & the agent/company must sign. If the policyowner buys the insurance on someone else (you MUST have their permission), then, the policyowner, the insured, & the agent/company must sign. The beneficiary NEVER signs the application. When the policyowner buys a policy on someone else, this is called a "third party applicant."

MR. WATSON: A note on ESTATES.....Here's how it works. When you die, we add up the value of your land, earrings, we add up your car, your gold necklace, your diamonds, Rolex, house, everything you own or control, including any life insurance you own. And if it exceeds a certain amount, everything above that will be subjected to an estate tax. Now, the primary drawback to leaving proceeds to an estate is that it can increase the size of the estate for estate tax purposes.

A note: Estates go through probate. Probate means "to prove" who gets what. A famous artist might have several "wills". The probate process will "prove" which one is valid. It can take a long time and can be expensive. Therefore, if life insurance proceeds are paid into the estate, they are no longer considered life insurance proceeds and will go through probate. Creditors can then go after whatever is in the estate, including the insurance money.

MR. WATSON: Now, life insurance policies do not go through probate. We don't need to prove who gets it. The beneficiary gets it.

MR. WATSON: Life insurance policies are creditor-proof. Your creditors can't come after it, including the cash values of your life insurance. Isn't that something? Guys, those are two great selling tools right there, educational tools.

MR. WATSON: Next, can I leave my proceeds to a charity? Yes, I can do that.

Minors ***

MR. WATSON: Next, minors as beneficiary. You don't want to name a minor as beneficiary. You may want to name a trust instead.

WOMAN: Instead of the juvenile beneficiary, you put it into a trust so that the mama, if you are divorced, can't get the boy's money?

MR. WATSON: Right. Good reason. Minors may lack judgment or expertise as to the investment of the money. If a minor is named, the insurance company, instead of paying to a minor, may

5 Key Terms

 

Go Back
Go to:		Continue