Question

Frank Milchsopp has a wastrel son, Homer, who will need Frank’s life insurance proceeds to live on when Frank dies.

1. Frank might arrange for a settlement agreement, using settlement options found in the contract, to provide for Homer’s care. Name and briefly describe the settlement options typically found in a life insurance contract.
2. Contrast the advantages of a settlement option with those of a trust with respect to:
   1. Expense required to set up and operate each of them.
   2. Flexibility that each offers once it takes effect.
3. An Auburn graduate who is a financial planner recommended that Frank name Homer as irrevocable beneficiary in order to ensure that the benefits are not included in Frank’s estate.
   1. Explain what the term irrevocable beneficiary means.
   2. Do you agree with the planner’s recommendation? Why or why not?
4. Frank is concerned that he may become disabled before he dies. If that happens it may become impossible for him to pay the premiums on his life insurance policy.
   1. Name and briefly describe a rider that Frank could add to his life insurance policy that would keep it in force if he becomes disabled.
   2. Describe the definition of disability that Frank would have to satisfy in order to trigger the disability benefit under the rider.

Answer 1

Explain what the term irrevocable beneficiary means.:

• Definition: Irrevocable Beneficiary — a beneficiary to a life insurance policy that cannot be changed without his or her consent.
• An irrevocable beneficiary is someone who is named in a life insurance policy, and it is different from the traditional revocable beneficiary, because if the owner of the policy wants to change the beneficiary, the irrevocable beneficiary needs to sign off. Whereas with a regular revocable policy, the revocable beneficiary would not need to sign off for a beneficiary change. This is often the case in a divorce agreement where they would name the beneficiary as irrevocable.

Do you agree with the planner’s recommendation? Why or why not?

Yes, I agree with the planner's recommendation, because the benefiary will not be change without consent of the benefiaciary.

Name and briefly describe a rider that Frank could add to his life insurance policy that would keep it in force if he becomes disabled.:

Waiver of premium rider

If you become totally disabled, unable to work and can't afford to pay your life insurance premiums, a waiver of premium rider allows you to stop paying premiums and still continue your policy until you are able to return to work full-time. Your life insurance policy remains in force - just as if you were making premium payments yourself. However, you will be required to prove you are totally disabled as defined by your policy rider.

Describe the definition of disability that Frank would have to satisfy in order to trigger the disability benefit under the rider.:

a person is considered totally disabled if he or she can't perform the duties of an occupation for which he or she is qualified by education, training, or experience. An injury or sickness must cause the disability. For example, if Harry sells cars, his duties include speaking with customers about buying cars. If an injury or illness prevents him from being able to handle this and other related duties, he will usually be considered disabled.