It's a term policy.
If it gets sold, it would be converted, guaranteeing a payout.
If not, he collects his living bene but likely there is no future payout.
Help Me Understand Actuarial Deductions?
- Thread starter nbrz
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If it gets sold, it would be converted, guaranteeing a payout.
If not, he collects his living bene but likely there is no future payout.
The contractual benefits remain the same. But the behavior will be different. An investor will keep paying the premium until death and collect the death benefit almost 100% of the time. Usually investor has other cash sources to pay as long as necessary. SO at some point the insurance company has to pay something, returning back some of the profits it booked over the years. With a consumer owning it, there is always a chance they can lapse it. They may decide they dont need it after listening to Ramsey or they may run out of funds and decide it is not worth it anymore. Or they could get sick and miss a payment if they dont have a contingency. SO this is why Life insurers do not like secondary market, it messes up their profit projections, they were counting on a certain number of people to lapse to enhance their profits.
The "deduction" is normally around $250. It is listed as an administrative charge for processing the accelerated benefit. The actuarial charge is based upon how the condition affects your anticipated longevity. If you do not accelerate the benefit, then the full face amount will remain in force and your beneficiary will receive it upon your death. The company will continue to collect the premiums that were based upon your original anticipated lifespan.
However, if you accelerating the benefit you are not going to be paying premiums for the length of time that was originally expected. Therefore, the benefit is reduced to compensate for the non collected premium (plus the money that would have been made through investing those premiums). It is based upon how long they are anticipating collecting premiums should you not accelerate. If you had a terminal cancer with a life expectancy, you would collect almost 100% of the accelerated benefit. Since people often live several years after having a stroke, the benefit offered will be less... In your case 60% of the amount you choose to accelerate.. You can accelerate a portion or all of the face amount. You accelerate a portion, the premium will reduce by the amount that would be charged for the acerbated amount ( not the amount you received) and the death benefit and cash values would be reduced by the same percentage.
Now, for the snake in the woodpile on life policies with accelerated benefits. I was with AGLA when they first came out with the "no cost' chronic and critical illness" riders. We thought they were the greatest thing since sliced bread. A life policy that would do triple duty. It paid in case of death, for a critical illnes such as cancer or Long Term Care. Sounds great!
Not really. And, the reason it was not that great was we did not change the way we selling the life insurance. We, like most others sold in on a needs basis. We would calculate the amount needed at death to pay of the mortgage, debts, final expense, family income, etc.
And, now we had these wonderful riders....... big problem!!!! The problem is the needs did not go away when a person got sick and accelerated the benefit but the money was no longer there to take care of the needs in case of death. The accelerated benefits can create a financial disaster for the family.
Not really. And, the reason it was not that great was we did not change the way we selling the life insurance. We, like most others sold in on a needs basis. We would calculate the amount needed at death to pay of the mortgage, debts, final expense, family income, etc.
And, now we had these wonderful riders....... big problem!!!! The problem is the needs did not go away when a person got sick and accelerated the benefit but the money was no longer there to take care of the needs in case of death. The accelerated benefits can create a financial disaster for the family.
How can you be sure you will not be dyng anytime soon?
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But the change of ownership doesn't create the differences becasue he, as the original owner has the ability to do everything the viatical company will do. If it is profitable for them, it would be just profitable for him to do what they will do.
- 24,978
Not sure you were referring to my income tax statement or not.
I believe the Accelerated Benefits would be handled same as the Death Benefits.
- 24,978
Viatical companies tend to have deeper pockets. Also make business and financial decisions absent of emotions.
Was not talking taxes at all. I never give a client an opinion in any way when to comes to taxes on accelerated benefits because it can be really complicated. Critical illness benefits are normally taxed the same as death benefit but if it is a permanent policy with cash value that complicate things. Chronic illness is taxed the same as long term care policies which have a limit on daily amounts.. `
Taxes and Life Insurance: Accelerated Death Benefits | ThinkAdvisor
That is true but it has to do with human nature and not a matter of contract.
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