Side-by-Side Business Insurance Plan Comparisons

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1 Side-by-Side Insurance Plan Comparisons Small Strategies & Solutions Protect and grow your business with proper planning

2 The success of your business is based on your hard work and the efforts of key employees. insurance can help protect, reward, and attract employees and help you plan for the continuation of your business. NOT A DEPOSIT NOT FDIC INSURED NOT GUARANTEED BY ANY BANK NOT INSURED BY ANY GOVERNMENT AGENCY MAY LOSE VALUE

3 Objective Cross-Purchase Buy Sell Disposal of business interest upon death or disability of an owner by transferring ownership to surviving co-owners who continue business. Entity-Purchase Buy Sell Disposal of business interest upon death or disability of an owner by having business purchase the deceased s or disabled s interest. Life Insurance Owner Each businessowner owns policy on life of other businessowners. owns policies on life of each businessowner. Premium Payor Each businessowner pays premiums for policy on life of other businessowners. pays premiums for policies on life of each businessowner. Beneficiary Each businessowner is beneficiary of policy he or she owns on life of other businessowners. Proceeds used to buy interest from deceased owner s estate or disabled businessowner. is the beneficiary of all life and disability policies. Premiums are not deductible. Proceeds are not subject to income tax. Income Tax Aspects Premiums are not deductible. Proceeds are not subject to income tax. Deceased s Heirs A step-up in basis occurs at death so no income tax due. A step-up in basis occurs at death so no income tax is due. Estate Tax Aspects Value of deceased owner s business interest included in gross estate, which should equal the purchase price under the buysell agreement. Value of deceased owner s business interest included in gross estate, which should equal the purchase price under the buy-sell agreement. Prepared by the Advanced Sales Department of Ohio National as an aid to its representatives and clients in the area of business insurance. This report should not be relied upon as legal advice. The application of principles of law to a client s individual circumstances should always be performed by competent legal counsel. 1

4 Objective Key Person Provide protection to offset financial loss to business due to death of valuable employee. Executive Bonus Fringe benefit plan used to attract and retain quality employees by providing possible supplemental retirement benefits and death benefit protection. Life Insurance Owner Premium Payor Beneficiary : Life insurance proceeds offset reduced profits and help pay for replacement upon key employee s death. As designated by employee. Premiums are not deductible. Proceeds are not subject to income tax. Premiums are deductible if considered reasonable compensation. Income Tax Aspects Employer-paid premiums are taxable income. Policy proceeds not subject to income tax (except gain under living benefit proceeds) provided policy stays in force. Deceased s Heirs Proceeds are not subject to income tax. Estate Tax Aspects Proceeds included in employee s gross estate due to policy ownership. Prepared by the Advanced Sales Department of Ohio National as an aid to its representatives and clients in the area of business insurance. 2

5 Split Dollar Provide effective incentive for key management to remain with employer by providing life insurance coverage at little cost to employee. and employee split the ownership, and beneficiary. Supplemental Executive Retirement Plans (SERPs) Retain key executive by offering tailored retirement benefits that enhance employee s fringe benefit package. A non-qualified plan popular with employers who want to tie valued employees to business for the long-term. Qualified Retirement Plans Provide retirement benefits for employees (including owner-employees) on tax-favored basis. See Comparison of Qualified Retirement Plans (Form 1789) for detailed description of various types of qualified retirement plans and their rules., employee or third party can be owner of life insurance policy depending on design of plan. and/or employee Most common premium split is employer-pay-all. Premium split can be tailored to meet specific objective. collects amount equal to its share of split-dollar arrangement, typically its cumulative premiums paid or perhaps entire cash value of policy. Balance of proceeds payable to employee s beneficiary. Premiums are not deductible. Proceeds received not subject to income tax. If policy is owned by company, it will be taxed each year on economic value of death benefit. Any cash received is taxable. Death benefit proceeds received tax-free. If policy owned by employee or third party, it will be treated as a below market loan. Premiums are not deductible. Proceeds are not subject to income tax. Benefit payments are deductible (if considered to be reasonable compensation) when paid to executive. Employer-paid premiums not treated as taxable income. Taxes deferred until executive receives benefits, which are considered ordinary income. Pension trust: Vesting schedule determines covered employee s ownership rights. Employer and/or employees can make contributions. Participant designates beneficiary (generally spouse) to receive lump sum or pre-retirement survivor annuity (depending on plan). Participant can designate beneficiary other than spouse, if spouse consents in writing. Contributions are deductible provided they meet guidelines of Internal Revenue Code and do not exceed limits of Code Section 415. Employer contributions not considered taxable income, except one-year term cost of any life insurance protection. Taxes deferred until benefits received. contributions (including term costs) recovered income tax-free. Proceeds are not subject to income tax. s portion of death proceeds included in gross estate due to incidents of ownership, e.g., if right to designate and change beneficiary, etc. Any benefit payments taxable as ordinary income when received. Present value of future benefit payments included in executive s gross estate. contributions (including term costs) and any pure insurance protection received tax-free. Death benefit balance, if any, is taxable. Value of account or benefit payments included in employee s gross estate. This report should not be relied upon as legal advice. The application of principles of law to a client s individual circumstances should always be performed by competent legal counsel. 3

6 Disability Income Group Life Group Health Objective Provide salary continuation plan for selected employees during disability. Provide life insurance death benefit for employee s family. Provide coverage for hospital, surgical and other medical expenses incurred due to sickness or accident. Life Insurance Owner Premium Payor Beneficiary Covered employee. Benefits offset salary lost while unable to work. As designated by employee. Premiums are deductible. Premiums are deductible. Employers can deduct premiums paid for health insurance provided for its employees. Income Tax Aspects Employer-paid premiums are not taxable income. Benefits are taxable. Employer-paid premiums for up to $50,000 of coverage is not taxable income. Cost of coverage in excess of $50,000 is taxable income. Employer-paid premiums are not taxable income, nor are benefits taxable. Deceased s Heirs Proceeds are not subject to income tax. Estate Tax Aspects Proceeds included in employee s gross estate, unless absolute assignment of all incidents of ownership was made three years prior to employee s death. 4 Prepared by the Advanced Sales Department of Ohio National as an aid to its representatives and clients in the area of business insurance. This report should not be relied upon as legal advice. The application of principles of law to a client s individual circumstances should always be performed by competent legal counsel.

7 Why Ohio National? You have a number of excellent companies to choose from for your business insurance. Ohio National is in the top rank of life insurers serving the small business market, for several good reasons: Financial strength Major independent analysts of the insurance industry give Ohio National high ratings for claims-paying ability and financial strength. (For details, go to Ohio National/ Financials and Ratings.) More important, perhaps, than the ratings themselves is the fact that Ohio National s ratings have not changed since Mutual heritage Because of Ohio National s mutual company heritage, the management view is long term. Thus, we are free from the pressure for short-term results driven by the 90-day earnings cycle, for example that stock companies (including most major insurers) are under. Ohio National s emphasis has always been on prudent, conservative, long-term management in the best interests of our policyholders. Outstanding professional representation More than 10,000 field representatives across the country have chosen to affiliate with Ohio National. They are well trained, experienced advisers who, in many cases, have multiple licenses and professional designations in financial services. High-performance products Ohio National has a long tradition of maintaining remarkably competitive individual life insurance, disability income insurance and annuity products. Get Started Today! Find out more about the types of business insurance you need to grow and protect your company. Call your financial representative today!

8 The Ohio National Life Insurance Company Ohio National Life Assurance Corporation One Financial Way Cincinnati, Ohio Post Office Box 237 Cincinnati, Ohio Telephone: Form 2415 Rev Ohio National Financial Services, Inc. Tracing its corporate origins to 1909, Ohio National markets a variety of insurance and financial products in 47 states (all except Alaska, Hawaii and New York), the District of Columbia and Puerto Rico, with subsidiary operations in Santiago, Chile. We are committed to building long-term relationships with our customers and to providing them with solutions as their needs change over time. Life insurance products issued by The Ohio National Life Insurance Company and Ohio National Life Assurance Corporation. Guarantees are based upon the claims-paying ability of the issuer. Product, product features and rider availability vary by state. Issuer not licensed to conduct business and products not available in AK, HI and NY. This brochure provides general information that should not be construed as specific legal advice nor the law of any particular state. Clients should seek the advice of a qualified legal professional for their specific situation. APPROVED FOR CLIENT USE.