Heirloom II Protect the heart of your business.

Transcription

1 Heirloom II Protect the heart of your business.

2 02 Heirloom II It is easy to start a business, but difficult to keep one.

3 Meeting your unique needs Your achievements. Your heirloom. There is a Chinese adage that says, It is easy to start a business, but difficult to keep one. From key person coverage to talent retention and diversification for risk management, Heirloom II is a flexible insurance plan that helps protect your company from the unexpected. Your business will have the financial assurance and continuity regardless of any unforeseen turn of events. Features Delivers strong cash value accumulation Transparent insurance charges Offers flexible premium payments 1 Offers guaranteed minimum interest crediting rate Allows for Change of Life insured 2 Offers Quit Smoking Incentive* Benefits Key Person Insurance Buy-Sell Planning Using Life Insurance Executive Bonus Estate Equalisation Adding an Alternative Asset Class to your Portfolio This diagram illustrates how Heirloom II accumulates its policy value. Premium you pay 1 Premium charge Policy value Face Amount Charges, Cost of Insurance and other policy charges + Interest credited (minimum guaranteed 2% p.a.) = Updated policy value Policy charges and the interest crediting rate will impact the growth in your policy value. Face Amount Charges and Cost of Insurance are deducted monthly from the policy value with Face Amount Charges payable only in the first 10 policy years. The minimum guaranteed interest crediting rate for the plan is 2% per annum with potential for further upside. *Quit Smoking Incentive Smokers can enjoy standard non-smoker policy charges for the first 3 years. With satisfactory evidence that you have quit smoking for at least 12 consecutive months by the end of the third policy year, you will continue to enjoy this privilege till the end of policy term. Heirloom II 03

4 Key Person Insurance People are a company s greatest assets. Within your company, there are key employees (e.g. a top sales representative, partner/shareholder or knowledgeable employee) who can make or break your business with their sudden departure. When they pass away prematurely, your business may suffer substantial losses. The adverse impact can range from loss of business experience, disruptions in management, sales or production, credit issues to replacement costs. Getting a key person insurance can protect your business against these risks. Solution The business purchases and owns a life insurance policy on the key employee. In the event of a premature death of the key employee, the life insurance policy will provide the business with the liquidity needed to keep the business running. The life insurance policy can also be an asset of the business and a persuasive incentive for the key employee to stay on. As an added incentive, a death benefit can be offered to the key employee s family in case of his/her premature death. If whole life insurance with cash values is used, the cash values can become a business asset for a line of credit and collateral for a loan. The liquidity provided by a life insurance policy can help the employer to: maintain the business operation assure creditors of a smooth transition promise customers continued satisfaction with company products and services cover the expenses of finding and training a suitable replacement protect goodwill and/or recover profit suffered How it works Premiums >> >> 1 2 >> 3 Employee Business Death Benefit Insurance Company The business decides to purchase a life insurance policy for a key employee. The face amount of the policy is determined by simple calculations. The cost of losing a key employee is generally five to ten times the employee s annual compensation. The other method is to determine the amount that the key employee contributes to earnings. The business is the owner and the beneficiary of the policy insuring the key employee s life. Upon the death of the employee, the business collects the policy proceeds and uses the cash as management sees fit. 04 Heirloom II

5 Buy-Sell Planning Using Life Insurance Designing a business continuity plan is crucial in ensuring that your business remains intact when a drastic triggering event occurs. Death, disability, critical illness or other triggering event for the partner/shareholder can affect your business. A well-constructed buy-sell agreement outlines what will happen to your business should such unfortunate events occur. When a buy-sell agreement is funded with life insurance, the policy owner (such as a partner/shareholder of the business or the business itself) uses the policy proceeds to buy out business interest on death, disability or critical illness. Advantages of a buy-sell agreement A properly designed buy-sell agreement can: help to secure a buyer by creating a market for your business interest maintain the intimacy of the business by restricting the transfer of your business interest to co-owners, family members or key employees of your choice help your family by providing liquidity for the payment of outstanding liabilities improve the business stability and credit risk by providing a business continuity plan assure that the business you created continues to sustain even in your absence Funding a buy-sell agreement When funding a buy-sell agreement, you will want to ensure that the required amount of cash is available when needed. While there are various funding methods, life insurance is the most appropriate way to fund the death provision of a buy-sell agreement. In addition, the insurance: may be more cost effective than other funding methods such as loans, sinking funds, etc. provides the liquidity to allow the purchaser to satisfy the buy-sell obligation without having to deplete business cash flow or personal funds can help fund other events, such as disability or critical illness, if a life insurance policy with potential cash accumulation is used Heirloom II 05

6 Two main types of buy-sell agreement 01 Entity buy-sell agreement funded with life insurance The entity purchase plan, also known as a stock redemption plan, works best with four or more partners/shareholders. A life insurance policy owned by the business may be utilized to purchase a partner s/shareholder s interest upon the occurrence of a triggering event. Partner/Shareholder Buy-sell agreement Premiums Business Insurance Proceeds Insurance Company Cash Business Interest Business Owner s Estate 02 Cross-purchase buy-sell agreement funded with life insurance A cross purchase plan works best with three or fewer partners/shareholders. Life insurance policies owned by each partner/shareholder are applied towards the purchase of the other participating partner s/shareholder s business interests upon the occurrence of a triggering event. Premiums Insurance Proceeds A Partner/Shareholder A Surviving Partner/Shareholder Buy-sell agreement Insurance Company Cash Business Interest B Partner/Shareholder B Premiums Business Owner s Estate 06 Heirloom II

7 Executive Bonus In today s competitive landscape, it is hard to attract and retain capable employees for your business. Companies offer attractive compensation plans on top of their regular salaries and benefits to encourage employees to stay on. Solution Your business offers an executive bonus arrangement to the key executive. During the executive s lifetime, he or she may access the policy s cash value for retirement or other financial needs. Upon the executive s death, the life insurance death benefit will be paid to the executive s beneficiary. Benefits The liquidity provided by a life insurance policy in an executive bonus plan offers: attractive benefits to selected key executives flexible funding options minimal administrative expenses custom tailored benefits for each executive potential supplementary retirement plan for the executive >> >> How it works 1 2 >> 3 The employer agrees to enter into an executive bonus arrangement with the executive The executive may access the cash value through withdrawals or loans to supplement retirement or other financial needs At the executive s death, the life insurance proceeds will be paid to the executive s beneficiaries Bonus Premiums Death Benefit Employer Executive Policy Distributions Insurance Company Beneficiaries What is the appropriate policy? Most executive bonus plans are funded with a whole life insurance with potential for cash accumulations. There are several reasons for this: Some whole life insurance policies offer a guaranteed level of premium and death benefit structure during the term of the policy Policy cash accumulation values may provide an attractive monetary benefit to the executive Universal life or investment-linked policies offer substantial flexibility on both premium and death benefit Policy choice generally depends upon the needs of the executive and perceived risk tolerance Heirloom II 07

8 Estate Equalisation Your estate may include a business which makes up a large percentage of your assets. What happens if you want to share your wealth with your heirs not all of whom are active within the company? Estate equalisation is a solution designed to solve the problem, helping to ensure that your estate will be equally divided among your beneficiaries. How does estate equalisation work? In the following scenario, Mr. and Mrs. Client have assets totalling S$20 million, of which S$10 million is represented by the value of their business. Of their three heirs, only Junior actively participates in the business. Mr. Client creates a business succession plan, and the first option is to give the business to Junior. However, he will also have to consider his other two heirs. It is important that Junior is not forced to liquidate part of the business in order to satisfy an equal distribution of the estate for his co-heirs. Life insurance, when structured properly, can provide the liquidity to divide the estate equally without affecting the business. Since the business is worth S$10 million and the clients will like Junior to have 100% ownership after his father passes on, Mr. Client can purchase a life insurance policy with a benefit of S$10 million. The sum assured of S$10 million, along with the will of remaining S$10 million of non-business estate assets, will be sufficient to give each non-active heirs S$10 million. Thus, the three heirs will receive an equal share of the estate. S$10 million Business Junior Inherits Business Mr & Mrs Client, Parents & Small Business Owners, S$20 Million Estate S$10 million Life Insurance Policy* Inherits Child #1 S$10 Million S$10 million by will Inherits Child #2 S$10 Million * The premium of the life insurance policy can be paid for by income derived from other sources. 08 Heirloom II

9 Adding an Alternative Asset Class to your Portfolio Putting all your eggs in a single basket can be risky. It is safer to distribute your investment across multiple asset classes such as stocks, bonds, and cash equivalents. This strategy helps to spread the risk across various asset classes. Advantages of life insurance Life insurance offers several distinct advantages, including death benefit protection, liquidity at death, cash accumulation and backing by a highly rated company. Life insurance may offer an additional level of diversification. Their returns are often not highly correlated with traditional asset classes. This level of diversification can help you optimise a portfolio. You can appropriately re-position certain assets to pay for life insurance premiums. Heirloom II 09

10 Three key benefits of adding life insurance to your portfolio 01 Low correlation Life insurance can complement traditional investments in a portfolio. Adding an asset class with low correlations to other investments can provide diversification and reduce overall portfolio risks since poor performance in one asset can be offset by strong performance in another. 02 Diversification Even top experts struggle to predict market performance. A smarter strategy is to diversify your portfolio, rather than just focusing on high-risk returns. Diversification reduces exposure to risk by combining a variety of investments according to an individual s specific needs or goals, possibly optimising the risk/return balance of the portfolio. The example below assumes that your portfolio consists of cash, bonds, equities, real estate and collectibles. You diversify your portfolio further by allocating S$1 million to purchase an insurance policy with an insured amount of S$4 million. At death, the policy pays out S$4 million. This insurance proceeds will increase your family s inheritance from S$20 to S$23 million while providing the liquidity your family needs to preserve your other assets. Equities S$4M Real Estate S$6M Art S$1M Bond S$4M Cash S$5M Equities S$4M Insurance S$4M Art S$1M Real Estate S$6M Cash S$4M Bond S$4M 03 Additional protection Life insurance is the only asset class that can help you fund a myriad of unique planning needs in the event of death. As such, life insurance is an excellent way for you to make sure your family will be financially adequate should anything happen to you. To find out more, speak with your DBS Relationship Manager today. 10 Heirloom II

11 Footnotes 1 The actual amount and frequency of premium payments will affect the Policy Value and potentially the death benefit, as well as how long the policy is kept in force. 2 Policy Owner may request to change the Life Insured after 2 years from the Policy Issue Date. Maximum of 2 changes is allowed per policy. Acceptance of the New Life Insured is at our and Manulife s absolute discretion and will depend upon the insurability of this New Life Insured as well as other Terms and Conditions as Manulife (Singapore) Pte. Ltd. shall determine from time to time. Cost of Insurance will be based on the New Life Insured s age, sex, country of residence, underwriting class and any additional ratings. For more details, please refer to the Product Contract. Important Notes All ages mentioned in this brochure are based on Age Last Birthday (ALB). These legacy plans and riders are issued and underwritten by Manulife (Singapore) Pte. Ltd. ( Manulife ) (Reg. No D) and distributed by DBS Bank Ltd ( DBS ). It is not an obligation of, deposit in or guaranteed by DBS. You will find the precise terms, conditions and exclusions of these plans in the respective policy contracts. This brochure is for general information only and is not a contract of insurance and has not been tailored to your specific investment objectives, financial situation and particular needs. You should seek advice from a financial adviser and obtain the product summary to read before deciding whether the product suits you. A product summary may be obtained from Manulife or any POSB/DBS branch. If you choose not to seek advice from a financial adviser, you should consider whether the product in question is suitable for you. Buying a life insurance policy is a long-term commitment. An early termination of the policy usually involves high costs and the surrender values payable (if any) may be less than the total premiums paid. You may write to Manulife to cancel the policy within 14 days of receiving the policy document and obtain a full refund of the premium paid after deducting any expenses incurred in issuing the policy. If the policy is sent by post, it shall be deemed to have been delivered within 7 days after posting. This policy is protected under the Policy Owners Protection Scheme which is administered by the Singapore Deposit Insurance Corporation (SDIC). Coverage for your policy is automatic and no further action is required from you. For more information on the types of benefits that are covered under the scheme as well as the limits of the coverage, where applicable, please contact Manulife or visit the Life Insurance Association or SDIC websites ( or Information is correct as at 1 January Issued and underwritten by: Heirloom II 11

12 For more information, please call DBS BusinessCare at ( from overseas), us at or visit Terms & Conditions apply DBS Bank Ltd Co. Reg. No.: E January 2016 Asia s Safest, Asia s Best Safest Bank, Asia , Global Finance Best Managed Bank, Asia Pac 2013, The Asian Banker Best Bank, Asia Pac 2014, Global Finance Excellence in SME Banking, Asia 2016, Retail Banker International Living, Breathing Asia