1 1 Accounts Receivable Financing Strategies Presented by: AIG Life Brokerage
2 2 Important The information presented herein is not a comprehensive analysis of the topic presented. Please be advised that any information provided in this presentation shall not be construed by any person as legal, tax or accounting advice. AIG American General Life Insurance strongly suggests that any life insurance owner, proposed owner, insured or proposed insured retain the services of qualified tax, accounting and legal counsel for advice on matters presented herein. The contents of this transmission are intended for agent use only. To ensure compliance with requirements imposed by U.S. Treasury Regulations, we inform you that any tax advice contained in this communication (including any attachments) was not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or (ii) promoting, marketing or recommending to another party any transaction or matter addressed herein.
3 3 What we ll cover: -Accounts receivable (A/R) defined -Strategy in a nutshell -Prospective clients -Role of insurance products -Asset protection issues -Case scenarios -Your A/R financing strategy facilitators -Next steps
4 4 What are accounts receivable?? -Balance sheet item -- asset - Loan to the company s clients
5 5 Accounts receivable are Account Receivables
6 6 Accounts receivable are usually Accounts Receivable
7 7 But, what if we could Accounts Receivable
8 8 What you can do with accounts receivable: 1) Nothing 2) Sell it to a bank at discount (factoring), or 3) Leverage its value with an accounts receivable financing strategy
9 9 How does accounts receivable financing differ? Accounts receivable are used as collateral for a loan
10 10 Loan proceeds are: -Typically deposited into life insurance or annuity products -Lender takes security interest in the product as additional collateral
11 11 In a nutshell: - Business borrows against its accounts receivable -Take loan proceeds, make a distribution to employee -Purchase a tax deferred insurance product with loan proceeds
12 12 Client objectives? -Better protect client assets from creditors -Acquire a life insurance policy that can repay the loan and provide death benefits in the event of untimely demise
13 13 Objectives continued -Potential growth of cash values on a tax advantaged basis that can be used to repay loan and/or provide supplementary income once insurance protection is no longer first priority.
14 14 (2) Business/practice In a nutshell Loan interest Loan proceeds (1) Lender Start here loan proceeds to: (3) Client pledges accounts receivable Places loan proceeds in: Policy is pledged as collateral (4) Insurance Policy
15 15 Prospective clients Physicians/medical practices Almost any business with accounts receivable (or other highly predictable cash flows) Those who desire to grow & protect assets
16 16 Physicians personally liable for malpractice claims
17 17 And malpractice liability insurance may not be the total solution to physician concerns
18 18 Challenges of -identifying malpractice carrier with sufficient capacity, -paying the premium (rates have skyrocketed), -lack of tort reform (some states), -the hammer clause
19 19 What Does It All Mean? Claims are increasing in number and size Malpractice insurance is either unavailable or insufficient Most available asset to plaintiffs may be A/R A/R is usually the practice s largest asset A/R is dormant for financial purposes
20 20 Client s Objectives -Protect the practice or business assets -Deter frivolous lawsuits -Encourage settlement
21 21 -Reposition accounts receivables into an asset with growth potential -Can provide a plan to repay the loan, upon a variety of triggering events -Policy cash values, over long term, may provide supplemental retirement income
22 22 (2) Business/practice In a nutshell Simple loan interest (1) Lender Start here Loan proceeds (3) loan proceeds Client pledges accounts receivable Places loan proceeds in: (4) collateral Insurance Policy
23 23 Why insurance products? Life insurance -Financial protection in event of premature death -Tax advantaged cash value growth within the policy -Access to policy withdrawals and tax deferred or similarly advantaged loans* *non-modified endowment life insurance contracts
24 24 Certain states offer creditor exemption for insurance death benefits and cash value of life insurance. Varies by state* *Limited availability based upon applicable state law. Prospective clients are strongly encouraged to consult with legal counsel to determine the existence and the extent of creditor exemption for life insurance in their state, if any.
25 25 Asset Protection: protecting the A/R and the loan proceeds
26 26 Move loan proceeds into: Policy Life and/or annuity products
27 27 Loan repayment exit strategies -Accounts receivable collected -Proceeds from sale of business or practice -Other assets -Withdrawal or loan from insurance product -Death proceeds in event of an untimely death -Combination of above
28 28 Two AIG approved A/R financing facilitators*: -Entaire Global Companies, Inc. -ARLIS (accounts receivable leveraged insurance strategies) *Firms above are not lenders. Lending performed by other parties. Insurance products offered through licensed producers of AIG Life Brokerage/American General Life Insurance Company. Named firms above market and/or administer accounts receivable loan and insurance purchase arrangements.
29 29 ENSHIELD Program From Entaire Global Companies, Inc.
30 30 ENSHIELD Steps Producer becomes an Entaire trained Technical Specialist (TS)- via EGU (Entaire Global University) Producer meets w/client; client completes PDF* Entaire reviews PDF Producer gathers required documentation Illustration & proposals prepared by Entaire *PDF = Personal Data Form
31 31 Steps continued Formal insurance underwriting by Concierge UW Entaire added to life application for 20% of case After final insurance underwriting offer, client completes loan documents -- provides to Entaire UCC-1 completed and funds wired to AIG Life Brokerage Policy delivered to Global One Financial, Inc., Entaire s wholly-owned lending subsidiary* *Entaire s subsidiary plan administration company (Entaire Global Plan Administrators, Inc.) administers the plan
32 32 Entaire-other Loan is interest only (simple) Minimum loan: $100,000 10, 15, or 20 year term (at client s option), renewable Competitive borrowing rate No personal guarantee 2, 3, 4, or 5 pay premium (all premium committed up front) Interest is only credited on amounts that have been deposited into the AIG policy AG Elite Value Index Universal Life (form 05441)
33 33 Entaire Global Companies, Inc. Contact Advanced Sales for more information
34 34 ARLIS (Accounts Receivable Leveraged Insurance Strategies) Lender: A.I. Credit Same lender as CMS (traditional premium financing) Lifetime, non-callable loans 5-pay funding (or less) with Elite Value Index UL product Either one loan with premium deposit account; or One commitment for 5 loans Uses interest rate between midpoint & current for collateral (currently around 6.5%); subject to annual adjustment
35 35 ARLIS ARLIS: 20% case split on the application Ben Renzo (Des Moines) former plaintiff attorney works on financing Lalat Pattanaik (Los Angeles) experienced benefits administrator in medical market works with producer Web-based proposal request A/R proposal, EVIUL illustration & Powerpoint presentation
36 36 ARLIS contact Advanced Sales for more information
37 37 John Doe, M.D.* -Age 49, specialist in neo-natal care -annual wage income approx: $ 600,000 -average receivables: $1 million *Hypothetical illustration only. Actual results may differ significantly from those represented herein.
38 38 John Doe, M.D. -A/R represents primary practice asset -Doctor is well aware of potential exposure to malpractice liability claims -loss of A/R potentially economically disastrous
39 39 A/R size and potential malpractice liability generate a concern for Dr. Doe How may this asset be protected?
40 40 Potential Solution financing the A/R subject to a perfected first lien placing loan proceeds into a life insurance product
41 41 Mechanics Third party lender makes loan to practice & takes A/R as collateral From loan proceeds, practice makes a distribution to Dr. Doe Dr. Doe purchases life insurance, max funded, minimum death benefit, non-modified endowment Policy pledge serves as additional loan collateral
42 42 Loan is structured to either: pay each recurring scheduled premium, or one loan is made and held in a premium deposit fund and disbursed as needed Policy is typically structured for 3 or 5 consecutive annual premiums Dr. Doe, through his practice, pays interest only on outstanding loan balance
43 43 Practice maintains loan arrangement for as long as desired, until death, retirement, or other exit Doctor repays loan upon exit, lender releases the perfected lien against the A/R & the assignment of the policy
44 44 Five payment example* Year Premium death benefit cash surrender value 1 $ 200,000 $ 3,117,000 $ 200, ,000 3,117, , ,000 3,117, , ,000 3,117, , ,000 3,117,000 1,012, ,117,000 1,325,122 Age 65 3,117,000 2,076,337 *Hypothetical Illustration created May, Male 49, Pref. Plus NT, Illinois, $200,000 annual premium, 5 annual premium payments, AG Elite Value Index UL, (form 05441), based upon hypothetical indexed interest earnings rate: 8.08%. Current rate: 5.4%, Guaranteed rate: 1%
45 45 Example continued Estimated withdrawals & loans from policy, commence age 65 for 15 years*: $199,845/year *AG Elite Value Index Universal Life, policy form 05441, Indexed interest at hypothetical 8.08%. Withdrawals to cost basis not taxable. Loans not currently taxable as long the policy remains in force.
46 46 AG Elite Value Index UL (form #05441) Index UL created by AIG American General primarily for the A/R market Index design may potentially maximize the A/R opportunity Only available in company approved A/R programs
47 47 AG Elite Value Index UL (form #05441) Based on Elite Index UL: Interest crediting tied to S&P 500 index; annual point to point 1% minimum interest guarantee Annual interest crediting cap- now 12%
48 48 AG Elite Value Index UL (form #05441) Based on Elite Index UL: 20 year look back illustration rate; now 8.08% Annual election of index interest crediting or excess interest crediting
49 49 AG Elite Value Index UL (form #05441) Based on Elite Index UL: no surrender charges near 100% cash value in year 1 on current basis (maximizes the value of pledged collateral) preferred underwriting class offered thru age 90
50 50 AG Elite Value Index UL (form #05441) spread compensation to producer high targets near MEC premium commission chargebacks (100% yrs. 1 & 2, 50% yr. 3)
51 51 AG Elite Value Index Universal Life (form #05441) Only available for AIG pre-approved programs/situations Work with AIG Life Brokerage Advanced Markets to illustrate
52 52 Next steps? -Identify your prospects -Review approved TPA and AIG website materials -Select a facilitator -Proceed with training & data taking procedures
53 53 Arlis: www. arstrategy.com Entaire: AIG Life Brokerage:
54 54 Thank you! Accounts Receivable Financing Strategies Presented by: AIG Life Brokerage