TRANSAMERICA LIFE INSURANCE COMPANY TransACE. Life Insurance Supplemental Illustration. Premium Financing:

Transcription

1 Premium Financing: Leveraging Your Net Worth Financing Life Insurance Premiums with a Third-Party Lender Prepared For: Valued Client Prepared By: Transamerica 1150 S Olive Street Los Angeles, CA This is an illustration not a contract. Presented by Transamerica on JANUARY 18, 2011 CA. Version Page 1 of 16

2 Table of Contents Table of Contents I. Leveraging Assets with Life Insurance and Premium Financing II. III. Nuts & Bolts: How Does Premium Financing Work? Why Premium Financing Could Be the Right Choice for You IV. Typical Loan Characteristics V. Your Snapshot: Financing vs. Non-Financing Comparison VI. Charting Your Loan VII. Exit Strategies: Making the Best Choice for Loan Repayment VIII. The Transamerica Advantage IX. Frequently Asked Questions X. Disclosures Appendix A. Premium Finance Proposal This is an illustration not a contract. Presented by Transamerica on JANUARY 18, 2011 CA. Version Page 2 of 16

3 I. Leveraging Assets with Life Insurance and Premium Financing Leveraging Assets with Life Insurance and Premium Financing Purchasing life insurance is an ideal way to help you provide a legacy to your family or favorite charity. However, the idea of liquidating high-yielding investments in order to pay the premiums of a life insurance policy may not be an appealing one. The good news is that there is a way to get the quality Transamerica life insurance you need by leveraging those assets and securing a loan while not disrupting the growth of your portfolio. It s known as premium financing, and Transamerica has the expertise to help you find just the right provider to allow you to take full advantage of it. The Challenge: Large Premiums and Gift Tax Liability You ve worked hard to achieve financial success, accumulating a sizeable estate that you hope to leave as a legacy to your loved ones. You recognize the vital role that life insurance plays in helping you achieve this goal. However, adequate life insurance coverage for a high-net-worth individual tends to require significant premium payments. Furthermore, annual gifts of premiums to a Legacy Trust set up as an Irrevocable Life Insurance Trust (ILIT) may be subject to gift taxes. And the more your money is taxed, the less there is to leave to those you care about most. The Strategy: Borrow Premiums from a Third-Party Lender If the idea of liquidating assets to buy a life insurance policy doesn t appeal to you, you may consider financing the premiums through a third-party lender. Here s how it would work: Your Legacy Trust trustee, rather than you personally, can apply for the loan using the policy itself and some other asset(s) as collateral. Because the lender will advance the funds to the insurance provider to pay the premium, the trustee will only be responsible for paying the interest on the loan. In other words, you will not need to make annual gifts to the Legacy Trust to cover the premium. Instead, you need only make annual gifts to the Legacy Trust in the amount of interest due, which will likely be less than the cumulative premium.[f1] Smaller gifts mean a potentially smaller amount of gift tax. Once it comes time to repay the premium loan, you may have several options, including simply allowing the repayment to come from your beneficiaries' proceeds. [F1] Loan interest in some future year or years may exceed the cost of premiums in those years. However, the cumulative outlay for interest may generally be less than the cumulative outlay for premiums. This is an illustration not a contract. Presented by Transamerica on JANUARY 18, 2011 CA. Version Page 3 of 16

4 II. Nuts & Bolts: How Does Premium Financing Work? Using premium financing to purchase life insurance through your Legacy Trust may be an attractive alternative for getting the benefits of life insurance without potentially jeopardizing your assets' ability to earn interest. The following diagram demonstrates how the premium financing process generally works. * Process requires that the insured provide among other things the following documents: (1) tax returns; (2) personal financial statements; (3) brokerage statements, if any. The reason for this is that the insured/grantor is providing the collateral on behalf of the trust which is borrowing the premiums. Therefore it is necessary for the insured/grantor to have adequate assets and a strong balance sheet to qualify for the loan. ** Typically, cash surrender value of a life insurance policy will serve as primary collateral for the loan. However, new policies may not have much cash surrender value in early years. So, you may need to make up for any shortfall between the loan balance and cash surrender value by pledging some other assets as collateral. Acceptable forms of collateral generally include cash, cash equivalents, publicly traded stock, other life insurance cash surrender value, letters of credit and personal guarantees. This is an illustration not a contract. Presented by Transamerica on JANUARY 18, 2011 CA. Version Page 4 of 16

5 Using premium financing to purchase a Transamerica life insurance policy and further leverage certain of your assets may make a lot of sense. Take a moment to review the candidate profile, benefits and special considerations to help you decide if premium financing is right for you. Ideal Candidates Should typically be years of age [F2] and have one or more of the following: Have a tangible net worth of greater than $5 million (excluding the residence) Require life insurance with an annual premium of $100,000 or more Be a business owner, with the majority of assets fully invested and illiquid Business owners looking to fund key-person coverage or a buy-sell agreement Benefits of Premium Financing High-Performing Assets Kept Intact: With a premium financed policy you can get the life insurance coverage you need without liquidating as many high-performing investments and incurring any attendant income taxes. Out-of-Pocket Expense: With a premium financed policy your required annual outlay will be loan interest only, which may likely be less than the full amount of the premium that would be due annually and cumulatively on a non-financed policy. Reduced or Eliminated Gift Tax Liability: Because you are gifting to your trust only the funds needed to cover the annual interest (as opposed to the full premium), you may be able to reduce or potentially eliminate any gift tax liability on those funds used to pay premiums. Interest Rate Arbitrage: A low interest rate environment means it is more likely for you to obtain a loan with interest rates that are less than the rate of return you can expect to earn on your currently invested assets. Considerations III. Why Premium Financing Could Be the Right Choice for You Loan Repayment: You may be able to rely on the death benefit to repay your loan, but if that is not feasible then an alternate loan exit strategy should be considered. Interest Deferral: Keep in mind that deferring payment of interest on your loan will quickly increase the amount of that loan and therefore will reduce the net death benefit if you do not create a plan for repaying the loan. Fluctuations in Interest Rate: The interest rate for a premium finance loan is typically based on a benchmark (for example, LIBOR or the Prime Rate) plus a spread. It is important to note that although the spread is usually fixed for the term of the loan, the benchmark fluctuates, making the amount of your required interest payments fluctuate as well. Loan Interest Is Generally Not Deductible: However, if a business owns the policy, interest may be deductible in limited circumstances as determined by a tax professional. [F2] Ideal candidates are not limited to this specific age group. Premium financing may also be suitable for candidates in their 40s and 50s. This is an illustration not a contract. Presented by Transamerica on JANUARY 18, 2011 CA. Version Page 5 of 16

6 IV. Typical Loan Characteristics The elements of a premium-financed policy are similar to those of any loan, including term, collateral, interest rate and repayment considerations. The following information provides additional information about each aspect of this type of loan and how it can be used to purchase a life insurance policy. Terms Premium financing loans are either annually renewable or fixed for a term of years. Regardless of the term of the loan, a lender will require the loan to either be repaid or refinanced upon maturity. Collateral When financing a life insurance policy with a loan, the cash surrender value of the policy will always be the primary collateral. Any deficit between the loan balance and the policy cash value can be resolved by providing other asset(s) as additional collateral. Other assets may include cash, cash equivalents, publicly traded stock, cash values of other life insurance policies, letters of credit and personal guarantees. When using other assets, please note: The cash value of any policies may not be available during the time it is collateral for the loan. The collateral value of stocks and other securities is usually discounted to reflect fluctuations in their market value. Real estate and privately held stock may not be acceptable as collateral. Some lenders, however, will use these assets as consideration for a letter of credit, which can be used as collateral. In some cases your collateral will need to be managed or held by the lender for the duration of the loan. Personal Guarantee Some lenders may ask you to personally guarantee the loan. There is some concern that simply providing a guarantee could be considered a taxable gift. The Internal Revenue Service (IRS) has issued and withdrawn a private letter ruling on this subject, and it remains a gray area. Alternatively, there may be no taxable gift until obligations are paid under the guarantee.[f3] [F3] It has become accepted practice in the industry to allow the personal guarantees as a form of collateral. However, you and your qualified advisors should consider the tax implications. This is an illustration not a contract. Presented by Transamerica on JANUARY 18, 2011 CA. Version Page 6 of 16

7 IV. Typical Loan Characteristics Interest Rates Interest rates vary by lender. Generally, the interest rate is made up of two elements, an index and a spread. The 12-month LIBOR (London Interbank Offered Rate) and the Prime Rate are commonly used indices. While both fixed and variable interest loans may be available, variable interest loans are more common. The following graphs show the individual performances of both the LIBOR and the Prime Rate indices over the past few years. This information should offer you a good snapshot of how these indices have performed historically and indicate the volatility involved in interest rates going forward. This is an illustration not a contract. Presented by Transamerica on JANUARY 18, 2011 CA. Version Page 7 of 16

8 V. Your Snapshot: Financing vs. Non-Financing Comparison Using premium financing to fund a Transamerica life insurance policy not only allows your other assets to remain intact and earning interest, but also may shield more of your money from gift taxes. Take a look at how you could benefit from a premium-financing strategy to fund a Transamerica life insurance policy. Below is an example of how much money premium financing can save you over 20 years.[f4] Premium Financing [F5] No Financing Annual Premium $800,000 $289,135 Initial Loan Amount $800,000 N/A Cumulative Loan through year 20 $6,775,000 N/A Total Loan Interest paid through year 20 $5,609,625 N/A Initial Gift Amount $0 $289,135 Cumulative Gifts through year 20 $5,609,625 $5,782,700 Cumulative Out-of-Pocket Expenses through year 20 $5,609,625 $5,782,700 Gross Death Benefit in year 20 $16,775,000 $10,000,000 Death Benefit Net of Loan in year 20 $10,000,000 N/A [F4] The planning year was determined when designing this illustration. The highlighted planning year can be changed at any point at your direction. The year used as the planning year may coincide with life expectancy based on the IRA required minimum distribution tables provided by the Treasury, or may be a year that was preselected based on your planning objectives. [F5] Any increase in the premium located in the premium financing column may reflect the cost of the Return of Premium (ROP) feature. This is an illustration not a contract. Presented by Transamerica on JANUARY 18, 2011 CA. Version Page 8 of 16

9 VI. Charting Your Loan Required Collateral (Outside of Policy Cash Values) in Year 20: $3,244,463 Cumulative Loan through Year 20: $6,775,000 Cumulative Interest through Year 20: $5,609,625 Cumulative Gifts through Year 20: $5,609,625 Cumulative Premiums through Year 20: $6,775,000 Valued Client Death Benefit Net of Loan in Year 20: $10,000,000 Gross Death Benefit in Year 20: $16,775,000 * If in a given year the amount gifted to the trust exceeds the amount of interest due in that year, the excess gift will grow by a rate of return. Any excess gifts and the interest earned may be used to pay loan interest in future years and offset future gifts to the trust from the insured/grantor. This is an illustration not a contract. Presented by Transamerica on JANUARY 18, 2011 CA. Version Page 9 of 16

10 VII. Exit Strategies: Making the Best Choice for Loan Repayment Repayment Creating an exit strategy is essential when you are considering financing life insurance premiums, and is something that should be implemented before the cumulative loan balance becomes unwieldy. You may choose from a number of strategies including: Pay Off the Loan Liquidate Assets - The most obvious way to repay your loan would be to liquidate assets while you re still living to cover the cost of the loan. Withdraw from the Policy Cash Value - You may also withdraw from the cash value of the policy itself to pay off the loan. The challenge with this approach, however, is that most lenders require approval before any withdrawals are allowed. In addition, the policy may not perform as expected, resulting in insufficient cash values and a potential lapse in coverage. Use Policy s Death Benefits - Another option is to simply repay the loan from the life insurance policy s death benefit. However, in doing so, you will decrease the amount of the death benefit left to your beneficiaries. Return of Premium Option A borrower who wants to ensure a certain death benefit may have the option of electing a return of premium (ROP) feature. Electing ROP and paying all loan interest as it comes due will help to ensure that the desired amount of death benefit will be available for your beneficiaries. Establish a Grantor Retained Annuity Trust A more sophisticated exit strategy is to establish a Grantor Retained Annuity Trust (GRAT). A GRAT is an estate-planning device that allows you to reduce your taxable estate by making a deferred gift to beneficiaries that s been discounted for gift tax purposes.[f6] You can use a GRAT as a loan exit strategy by designating your Legacy Trust as your GRAT beneficiary. [F6] It is important to note that if you fail to survive the selected term of the GRAT, the assets left in the trust at the time of death will be subject to estate taxes--resulting in no worse a situation than if the transfer never occurred, except for the administrative costs and fees of establishing the GRAT. This is an illustration not a contract. Presented by Transamerica on JANUARY 18, 2011 CA. Version Page 10 of 16

11 VII. Exit Strategies: Making the Best Choice for Loan Repayment Estate Tax Exposure & Finding the Right Loan Repayment Plan You ve worked hard to build a large estate, but it may be currently exposed to estate tax. If you ve decided to finance the premiums of a life insurance policy to provide the liquidity necessary to pay these taxes, you also realize the importance of implementing a plan to pay off the premium finance loan before the cumulative loan balance becomes unwieldy. In some circumstances use of the policy proceeds may be applied to repay the loan, while in other cases lifetime planning requires an exit strategy involving the use of other assets. If you require estate planning and a premium finance loan exit strategy, you can solve both problems with a Grantor Retained Annuity Trust ("GRAT"). A GRAT pays you an annuity for the term of the trust and is an estate-planning device that allows you to reduce your taxable estate by making a deferred gift through the trust to beneficiaries at a discount for gift tax purposes.[f7] It is a trust for a specified term of years to which you make a one-time transfer of an asset. At the end of this term, the remaining trust assets will be distributed to beneficiaries. You can use a GRAT as a loan exit strategy by designating your Legacy Trust as the GRAT beneficiary. You can select a shortened premium payment schedule so that you will know the exact loan balance at the end of the short pay period (assuming that interest is paid annually). The term of the GRAT should coincide with the short-pay period so that the remainder interest, once distributed to the Legacy Trust, can be used to repay the outstanding loan balance. [F7] It is important to note that if you fail to survive the selected term of the GRAT, the assets left in the trust at the time of death may be subject to estate taxes--resulting in no worse a situation than if the transfer never occurred, except for the administrative costs and fees of establishing the GRAT. This is an illustration not a contract. Presented by Transamerica on JANUARY 18, 2011 CA. Version Page 11 of 16

12 The GRAT Exit Strategy How a GRAT Can Work to Your Advantage TRANSAMERICA LIFE INSURANCE COMPANY VII. Exit Strategies: Making the Best Choice for Loan Repayment A GRAT is an excellent way to protect more of your assets from estate and gift tax while covering the balance of your premium-financing loan. Below is an example of how a GRAT exit strategy can help you maximize the amount of assets you are able to pass on to loved ones. Assume for illustrative purposes that there is an existing $3 million premium finance loan on a $10 million life insurance policy. Without an exit strategy in place, the insured's loved ones would receive only $7 million after the loan is repaid. However, by implementing a GRAT exit strategy designed to distribute $3 million to the Legacy Trust after a specific term of years, the trustee can use those funds to pay off the premium finance loan--preserving the $10 million death benefit for distribution to beneficiaries. This is an illustration not a contract. Presented by Transamerica on JANUARY 18, 2011 CA. Version Page 12 of 16

13 VIII. The Transamerica Advantage The Transamerica Advantage Transamerica offers you not only outstanding expertise in the areas of premium-financed life insurance policies and innovative estate planning, but also a reputation of strength and stability. For over a century, Transamerica companies have been leading providers of insurance and investment products for individuals and companies and have built a reputation on solid management, sound decisions and consumer confidence. In 1999, Transamerica was acquired by AEGON, one of the world s leading life insurance and pension groups. With headquarters in The Hague, the Netherlands, AEGON s businesses serve millions of customers throughout the Americas, Europe and Asia. For information about AEGON and Transamerica, please visit and This is an illustration not a contract. Presented by Transamerica on JANUARY 18, 2011 CA. Version Page 13 of 16

14 IX. Frequently Asked Questions 1. What are the minimum financing requirements? All premium finance lenders have their own set of requirements. Generally, the minimum annual premium for a financed policy is $100,000. In addition, borrowers must meet a minimum net-worth requirement. Generally, a client s total net worth must exceed $5 million. 2. How does the collateral work? Cash surrender value of a life insurance policy will always serve as primary collateral; however, you may be required to make up any shortfall between the loan balance and the policy cash value by pledging other asset(s) as collateral. Acceptable forms of collateral typically include cash, cash equivalents, publicly traded stock, other life insurance cash values, letters of credit and personal guarantees. 3. What is the term of a premium-financing loan? Premium financing loans are either annually renewable or fixed for a number of years. If the loan is for a fixed number of years, rather than for the life of the insured, the lender will require the balance to be repaid at maturity if the loan is not refinanced. 4. What interest rate will I be charged? Interest rates vary according to lender. Generally, the interest rate is made up of two elements, an index and a spread. The 12-month LIBOR (London Interbank Offered Rate) and the Prime Rate are commonly used indices. While both fixed and variable interest loans are generally available, variable interest loans are more common. 5. Will I be required to pay interest? Many lenders require that interest be paid annually, while other lenders will allow the borrower to accrue interest. Some lenders may impose time restrictions on how long interest can be accrued (e.g., five years) and may set additional financial requirements for the borrower (e.g., higher net worth or additional collateral requirements). 6. Is prepayment an option? Some lenders impose a breakage fee for paying off the loan before the scheduled maturity date. It is important to check with each lender regarding prepayment penalties. 7. Can a premium-financing loan ever be called? Generally, lenders will only call a loan in the event of default, as defined by the loan documents. Some lenders do retain the right to call the loan at any time if the financial condition of the borrower has deteriorated. This is an illustration not a contract. Presented by Transamerica on JANUARY 18, 2011 CA. Version Page 14 of 16

15 IX. Frequently Asked Questions 8. What types of life insurance products are typically financed? Why? A universal life insurance policy with a no lapse guarantee is typically the best fit for premium financing. The reason for this is that so long as premiums are paid the death benefit will be guaranteed regardless of the policy cash value. This removes one of the potential risks involved with premium financing, policy crediting rate risk, which is the risk that cash value may be less than anticipated due to a decrease in the currently assumed policy crediting rate. While cash value is the primary collateral in a premium finance loan, any reduction to cash value while not impacting the death benefit will require additional other collateral be posted by the insured. Typically, high-net-worth individuals buy a life insurance policy to solve an estate liquidity problem. With a guaranteed product, high-net-worth individuals can eliminate variables and ensure that their estate will have sufficient cash to pay any estate tax liability. 9. What are my options for repaying the loan premiums? You may choose to repay the loan while still living, choose to have the premium be covered by the death benefits of the life insurance policy, or choose to fund the premiums (and shield more of your income from gift tax) through an additional trust known as a GRAT. This is an illustration not a contract. Presented by Transamerica on JANUARY 18, 2011 CA. Version Page 15 of 16

16 X. Disclosures The Full Policy Surrender Penalty Waiver Endorsement (Honeymoon Provision) waives company-imposed surrender charges for a full surrender of a policy during the first five policy years. The Honeymoon Provision of a universal life insurance policy may reduce the premium finance collateral requirements by substituting accumulated value for cash values for policy years one through five. Surrender charges will continue to apply to partial surrenders, loan amounts, and face reductions. The Honeymoon Provision is only available at issue on policies with a minimum required premium of $100,000 each year for five years. is a non-participating flexible-premium universal life insurance policy issued by Transamerica Life Insurance Company, Cedar Rapids, IA (Policy Form # (CVAT), Group Certificate # (CVAT) for certificates issued under a group policy issued to the Rhode Island National Consumer Protection Trust). Policy form and number may vary, and this policy may not be available in all jurisdictions. This material was not intended or written to be used, and cannot be used, to avoid penalties imposed under the Internal Revenue Code. This material was written to support the promotion or marketing of the products, services, and/or concepts addressed in this material. Anyone to whom this material is promoted, marketed, or recommended should consult with and rely solely on their own independent advisors regarding their particular situation and the concepts presented here. ( Transamerica ), and its representatives do not give tax or legal advice. This material and the concepts presented here are provided for informational purposes only and should not be construed as tax or legal advice. Discussions of the various planning strategies and issues are based on our understanding of the applicable federal income, gift, and estate tax laws in effect at the time of publication. However, these laws are subject to interpretation and change, and there is no guarantee that the relevant tax authorities will accept Transamerica s interpretations. Additionally, the information presented here does not consider the impact of applicable state laws upon clients and prospects. Although care is taken in preparing this material and presenting it accurately, Transamerica disclaims any express or implied warranty as to the accuracy of any material contained herein and any liability with respect to it. This information is current as of December OLA This is an illustration not a contract. Presented by Transamerica on JANUARY 18, 2011 CA. Version Page 16 of 16

17 INTEREST EXPENSE Insured: Valued Client Initial Trust Deposit: $0 UW Class: (FEMALE) STANDARD NON SMOKER, Age 70 Interest Payment Option: ADVANCED Carrier: Years of Accrual: 0 Product Info: TransACE (R) / Face Amount : , DB Option: PREM PLUS/CVAT *Honeymoon Provision: Y FINANCED POLICY LOAN EXPENSES LOAN COLLATERAL EOY Net DB Assumed BOY BOY (col 2 9) Annual Policy Cash Death Loan After Loan Interest Interest Interest Collateral Add'l Collateral Year Premium Value* Benefit Balance Repayment Rate Paid Accrued Required Required (1) (2) (3) (4) (5) (6) (7) (8) (9) (10) 1 800, ,114 10,800, ,000 10,000, % (42,000) 0 800,000 (138,886) 2 800,000 1,342,753 11,600,000 1,600,000 10,000, % (84,000) 0 1,600,000 (257,247) 3 800,000 2,047,722 12,400,000 2,400,000 10,000, % (126,000) 0 2,400,000 (352,278) 4 625,000 2,603,278 13,025,000 3,025,000 10,000, % (158,813) 0 3,025,000 (421,722) 5 625,000 3,168,474 13,650,000 3,650,000 10,000, % (191,625) 0 3,650,000 (481,526) 6 625,000 3,523,726 14,275,000 4,275,000 10,000, % (224,438) 0 4,275,000 (751,274) 7 625,000 4,100,872 14,900,000 4,900,000 10,000, % (257,250) 0 4,900,000 (799,128) 8 625,000 4,675,342 15,525,000 5,525,000 10,000, % (290,063) 0 5,525,000 (849,658) 9 625,000 5,240,241 16,150,000 6,150,000 10,000, % (322,875) 0 6,150,000 (909,759) ,000 5,794,517 16,775,000 6,775,000 10,000, % (355,688) 0 6,775,000 (980,483) 6,775,000 (2,052,750) ,825,833 16,775,000 6,775,000 10,000, % (355,688) 0 6,775,000 (949,167) ,825,588 16,775,000 6,775,000 10,000, % (355,688) 0 6,775,000 (949,412) ,785,863 16,775,000 6,775,000 10,000, % (355,688) 0 6,775,000 (989,137) ,701,300 16,775,000 6,775,000 10,000, % (355,688) 0 6,775,000 (1,073,700) ,562,380 16,775,000 6,775,000 10,000, % (355,688) 0 6,775,000 (1,212,620) ,350,448 16,775,000 6,775,000 10,000, % (355,688) 0 6,775,000 (1,424,552) ,058,032 16,775,000 6,775,000 10,000, % (355,688) 0 6,775,000 (1,716,968) ,675,047 16,775,000 6,775,000 10,000, % (355,688) 0 6,775,000 (2,099,953) ,175,655 16,775,000 6,775,000 10,000, % (355,688) 0 6,775,000 (2,599,345) ,530,537 16,775,000 6,775,000 10,000, % (355,688) 0 6,775,000 (3,244,463) 6,775,000 (5,609,625) ,680,704 16,775,000 6,775,000 10,000, % (355,688) 0 6,775,000 (4,094,296) ,592,943 16,775,000 6,775,000 10,000, % (355,688) 0 6,775,000 (5,182,057) ,911 16,775,000 6,775,000 10,000, % (355,688) 0 6,775,000 (6,578,089) ,775,000 6,775,000 10,000, % (355,688) 0 6,775,000 (6,775,000) ,775,000 6,775,000 10,000, % (355,688) 0 6,775,000 (6,775,000) ,775,000 6,775,000 10,000, % (355,688) 0 6,775,000 (6,775,000) ,775,000 6,775,000 10,000, % (355,688) 0 6,775,000 (6,775,000) ,775,000 6,775,000 10,000, % (355,688) 0 6,775,000 (6,775,000) ,775,000 6,775,000 10,000, % (355,688) 0 6,775,000 (6,775,000) ,775,000 6,775,000 10,000, % (355,688) 0 6,775,000 (6,775,000) 6,775,000 (9,166,500) 0 Column Description: 1) Insurance premium financed by lender. 6) Loan interest rate is set by the lender and subject to change according to market fluctuations. 2) Non guaranteed cash value from the life insurance policy illustration.* 7) Beginning of year interest payment based on the outstanding loan balance in col 4. 3) Death benefit provided from the life insurance illustration. 8) Interest accrued, not paid, and added to the loan balance. 4) Cumulative loan balance including total premium borrowed and any accrued interest. 9) Based on 100% of the loan exposure (col 4). 5) Policy death benefit in excess of loan amount. 10) Additional collateral is the difference between cash value and required collateral posted by the borrower it's the cash value less end of year loan balance. *The Honeymoon Provision waives company imposed surrender charges for a full surrender of a policy during the first five policy years. The Honeymoon Provision of a universal life policy may reduce the premium finance collateral requirements by substituting accumulated values for cash values for years 1 5. Surrender charges will continue to apply to partial surrenders, loan amounts, and face reductions. The Honeymoon Provision is only available at issue on policies with a minimum required premium of $100,000 each year for five years. Presented by: Transamerica This is a sample supplemental illustration and must be presented with the complete product illustration. Loan terms and conditions mentioned are determined by lender. OLA 2033 Appendix A

18 GIFT ANNUAL VS. INITIAL Insured: Valued Client Initial Trust Deposit: $0 UW Class: (FEMALE) STANDARD NON SMOKER, Age 70 Interest Payment Option: ADVANCED Carrier: Years of Accrual: 0 Product Info: TransACE (R) / Face Amount : , DB Option: PREM PLUS/CVAT *Honeymoon Provision: Y FINANCED POLICY ANNUAL GIFT INITIAL GIFT TO TRUST Assumed BOY BOY EOY Annual Amount Gift Trust Account Annual Interest Interest Interest Loan Gift of of With Growth Withdrawal Year Premium Rate Paid Accrued Balance Loan Interest Gift(s) At 0% to Pay Interest (1) (2) (3) (4) (5) (6) (7) (8) (9) 1 800, % (42,000) 0 800,000 (42,000) , % (84,000) 0 1,600,000 (84,000) , % (126,000) 0 2,400,000 (126,000) , % (158,813) 0 3,025,000 (158,813) , % (191,625) 0 3,650,000 (191,625) , % (224,438) 0 4,275,000 (224,438) , % (257,250) 0 4,900,000 (257,250) , % (290,063) 0 5,525,000 (290,063) , % (322,875) 0 6,150,000 (322,875) , % (355,688) 0 6,775,000 (355,688) ,775,000 (2,052,750) 0 (2,052,750) % (355,688) 0 6,775,000 (355,688) % (355,688) 0 6,775,000 (355,688) % (355,688) 0 6,775,000 (355,688) % (355,688) 0 6,775,000 (355,688) % (355,688) 0 6,775,000 (355,688) % (355,688) 0 6,775,000 (355,688) % (355,688) 0 6,775,000 (355,688) % (355,688) 0 6,775,000 (355,688) % (355,688) 0 6,775,000 (355,688) % (355,688) 0 6,775,000 (355,688) ,775,000 (5,609,625) 0 (5,609,625) % (355,688) 0 6,775,000 (355,688) % (355,688) 0 6,775,000 (355,688) % (355,688) 0 6,775,000 (355,688) % (355,688) 0 6,775,000 (355,688) % (355,688) 0 6,775,000 (355,688) % (355,688) 0 6,775,000 (355,688) % (355,688) 0 6,775,000 (355,688) % (355,688) 0 6,775,000 (355,688) % (355,688) 0 6,775,000 (355,688) % (355,688) 0 6,775,000 (355,688) ,775,000 (9,166,500) 0 (9,166,500) 0 Column Description: 1) Insurance premium financed by lender. 5) Cumulative loan balance including total premium borrowed and any accrued interest. 2) Loan interest rate is set by lender and subject to change according to market fluctuations. 6) Annual gift of loan interest to trust. 3) Beginning of year interest payment based on the outstanding loan balance in col 5. 7) Initial gift(s) to trust. 4) Interest accrued, not paid, and added to the loan balance. 8) Trust growth with a hypothetical investment rate. 9) Trust account withdrawals to pay the loan interest. *The Honeymoon Provision waives company imposed surrender charges for a full surrender of a policy during the first five policy years. The Honeymoon Provision of a universal life policy may reduce the premium finance collateral requirements by substituting accumulated values for cash values for years 1 5. Surrender charges will continue to apply to partial surrenders, loan amounts, and face reductions. The Honeymoon Provision is only available at issue on policies with a minimum required premium of $100,000 each year for five years. Presented by: Transamerica This is a sample supplemental illustration and must be presented with the complete product illustration. Loan terms and conditions mentioned are determined by lender. OLA 2033 Appendix A

19 BENEFIT OF FINANCING Insured: Valued Client Initial Trust Deposit: $0 UW Class: (FEMALE) STANDARD NON SMOKER, Age 70 Interest Payment Option: ADVANCED Carrier: Years of Accrual: 0 Product Info: TransACE (R) / Face Amount : , DB Option: PREM PLUS/CVAT *Honeymoon Provision: Y FINANCED POLICY LOAN EXPENSES NON FINANCED POLICY SAVINGS DUE TO FINANCING EOY Net DB Assumed BOY BOY Annual Cumulative Annual Death Loan After Loan Interest Interest Interest Annual Death Cash Cash Year Premium Benefit Balance Repayment Rate Paid Accrued Premium Benefit Savings Savings (1) (2) (3) (4) (5) (6) (7) (8) (9) (10) (11) 1 800,000 10,800, ,000 10,000, % (42,000) 0 289,135 10,000, , , ,000 11,600,000 1,600,000 10,000, % (84,000) 0 289,135 10,000, , , ,000 12,400,000 2,400,000 10,000, % (126,000) 0 289,135 10,000, , , ,000 13,025,000 3,025,000 10,000, % (158,813) 0 289,135 10,000, , , ,000 13,650,000 3,650,000 10,000, % (191,625) 0 289,135 10,000,000 97, , ,000 14,275,000 4,275,000 10,000, % (224,438) 0 289,135 10,000,000 64, , ,000 14,900,000 4,900,000 10,000, % (257,250) 0 289,135 10,000,000 31, , ,000 15,525,000 5,525,000 10,000, % (290,063) 0 289,135 10,000,000 (928) 938, ,000 16,150,000 6,150,000 10,000, % (322,875) 0 289,135 10,000,000 (33,740) 905, ,000 16,775,000 6,775,000 10,000, % (355,688) 0 289,135 10,000,000 (66,553) 838,600 6,775,000 (2,052,750) 0 2,891, , ,775,000 6,775,000 10,000, % (355,688) 0 289,135 10,000,000 (66,553) 772, ,775,000 6,775,000 10,000, % (355,688) 0 289,135 10,000,000 (66,553) 705, ,775,000 6,775,000 10,000, % (355,688) 0 289,135 10,000,000 (66,553) 638, ,775,000 6,775,000 10,000, % (355,688) 0 289,135 10,000,000 (66,553) 572, ,775,000 6,775,000 10,000, % (355,688) 0 289,135 10,000,000 (66,553) 505, ,775,000 6,775,000 10,000, % (355,688) 0 289,135 10,000,000 (66,553) 439, ,775,000 6,775,000 10,000, % (355,688) 0 289,135 10,000,000 (66,553) 372, ,775,000 6,775,000 10,000, % (355,688) 0 289,135 10,000,000 (66,553) 306, ,775,000 6,775,000 10,000, % (355,688) 0 289,135 10,000,000 (66,553) 239, ,775,000 6,775,000 10,000, % (355,688) 0 289,135 10,000,000 (66,553) 173,075 6,775,000 (5,609,625) 0 5,782, , ,775,000 6,775,000 10,000, % (355,688) 0 289,135 10,000,000 (66,553) 106, ,775,000 6,775,000 10,000, % (355,688) 0 289,135 10,000,000 (66,553) 39, ,775,000 6,775,000 10,000, % (355,688) 0 289,135 10,000,000 (66,553) (26,583) ,775,000 6,775,000 10,000, % (355,688) 0 289,135 10,000,000 (66,553) (93,135) ,775,000 6,775,000 10,000, % (355,688) 0 289,135 10,000,000 (66,553) (159,688) ,775,000 6,775,000 10,000, % (355,688) 0 289,135 10,000,000 (66,553) (226,240) ,775,000 6,775,000 10,000, % (355,688) 0 289,135 10,000,000 (66,553) (292,793) ,775,000 6,775,000 10,000, % (355,688) 0 289,135 10,000,000 (66,553) (359,345) ,775,000 6,775,000 10,000, % (355,688) 0 289,135 10,000,000 (66,553) (425,898) ,775,000 6,775,000 10,000, % (355,688) 0 289,135 10,000,000 (66,553) (492,450) 6,775,000 (9,166,500) 0 8,674,050 (492,450) Column Description: 1) Insurance premium financed by lender. 6) Beginning of year interest payment based on the outstanding loan balance shown in col 3. 2) Death benefit provided from life insurance policy illustration. 7) Interest accrued, not paid, and added to the loan balance. 3) Cumulative loan balance including total premium borrowed and any accrued interest. 8) This premium maybe lower based on level death benefit option. 4) Net death benefit available after loan repayment. 9) Level death benefit of non financed insurance policy. 5) Loan interest rate is set by the lender and subject to change according to market fluctuations. 10) Comparison of cash outlay between loan interest upon financing premium vs. non financing of annual premium. Col 6 less Col 8. 11) Cumulative cash flow comparison of out of pocket cost of paying premium to financing premium. *The Honeymoon Provision waives company imposed surrender charges for a full surrender of a policy during the first five policy years. The Honeymoon Provision of a universal life policy may reduce the premium finance collateral requirements by substituting accumulated values for cash values for years 1 5. Surrender charges will continue to apply to partial surrenders, loan amounts, and face reductions. The Honeymoon Provision is only available at issue on policies with a minimum required premium of $100,000 each year for five years. Presented by: Transamerica This is a sample supplemental illustration and must be presented with the complete product illustration. Loan terms and conditions mentioned are determined by lender. OLA 2033 Appendix A

20 CAPITAL GROWTH DUE TO SAVINGS Insured: Valued Client Initial Trust Deposit: $0 UW Class: (FEMALE) STANDARD NON SMOKER, Age 70 Interest Payment Option: ADVANCED Carrier: Years of Accrual: 0 Product Info: TransACE (R) / Face Amount : , DB Option: PREM PLUS/CVAT *Honeymoon Provision: Y FINANCED POLICY NON FINANCED POLICY CAPITAL GROWTH DUE TO SAVINGS EOY Assumed BOY BOY Net DB Annual Assumed Capital Annual Loan Interest Interest Interest Death After Loan Annual Death Cash Investment Growth Year Premium Balance Rate Paid Accrued Benefit Repayment Premium Benefit Savings Rate of Return Account (1) (2) (3) (4) (5) (6) (7) (8) (9) (10) (11) (12) 1 800, , % (42,000) 0 10,800,000 10,000, ,135 10,000, , % 261, ,000 1,600, % (84,000) 0 11,600,000 10,000, ,135 10,000, , % 495, ,000 2,400, % (126,000) 0 12,400,000 10,000, ,135 10,000, , % 697, ,000 3,025, % (158,813) 0 13,025,000 10,000, ,135 10,000, , % 877, ,000 3,650, % (191,625) 0 13,650,000 10,000, ,135 10,000,000 97, % 1,033, ,000 4,275, % (224,438) 0 14,275,000 10,000, ,135 10,000,000 64, % 1,164, ,000 4,900, % (257,250) 0 14,900,000 10,000, ,135 10,000,000 31, % 1,268, ,000 5,525, % (290,063) 0 15,525,000 10,000, ,135 10,000,000 (928) 6.00% 1,343, ,000 6,150, % (322,875) 0 16,150,000 10,000, ,135 10,000,000 (33,740) 6.00% 1,387, ,000 6,775, % (355,688) 0 16,775,000 10,000, ,135 10,000,000 (66,553) 6.00% 1,400,715 6,775,000 (2,052,750) 0 2,891, , ,775, % (355,688) 0 16,775,000 10,000, ,135 10,000,000 (66,553) 6.00% 1,414, ,775, % (355,688) 0 16,775,000 10,000, ,135 10,000,000 (66,553) 6.00% 1,428, ,775, % (355,688) 0 16,775,000 10,000, ,135 10,000,000 (66,553) 6.00% 1,443, ,775, % (355,688) 0 16,775,000 10,000, ,135 10,000,000 (66,553) 6.00% 1,459, ,775, % (355,688) 0 16,775,000 10,000, ,135 10,000,000 (66,553) 6.00% 1,476, ,775, % (355,688) 0 16,775,000 10,000, ,135 10,000,000 (66,553) 6.00% 1,494, ,775, % (355,688) 0 16,775,000 10,000, ,135 10,000,000 (66,553) 6.00% 1,514, ,775, % (355,688) 0 16,775,000 10,000, ,135 10,000,000 (66,553) 6.00% 1,534, ,775, % (355,688) 0 16,775,000 10,000, ,135 10,000,000 (66,553) 6.00% 1,555, ,775, % (355,688) 0 16,775,000 10,000, ,135 10,000,000 (66,553) 6.00% 1,578,619 6,775,000 (5,609,625) 0 5,782, , ,775, % (355,688) 0 16,775,000 10,000, ,135 10,000,000 (66,553) 6.00% 1,602, ,775, % (355,688) 0 16,775,000 10,000, ,135 10,000,000 (66,553) 6.00% 1,628, ,775, % (355,688) 0 16,775,000 10,000, ,135 10,000,000 (66,553) 6.00% 1,655, ,775, % (355,688) 0 16,775,000 10,000, ,135 10,000,000 (66,553) 6.00% 1,684, ,775, % (355,688) 0 16,775,000 10,000, ,135 10,000,000 (66,553) 6.00% 1,714, ,775, % (355,688) 0 16,775,000 10,000, ,135 10,000,000 (66,553) 6.00% 1,747, ,775, % (355,688) 0 16,775,000 10,000, ,135 10,000,000 (66,553) 6.00% 1,781, ,775, % (355,688) 0 16,775,000 10,000, ,135 10,000,000 (66,553) 6.00% 1,817, ,775, % (355,688) 0 16,775,000 10,000, ,135 10,000,000 (66,553) 6.00% 1,856, ,775, % (355,688) 0 16,775,000 10,000, ,135 10,000,000 (66,553) 6.00% 1,897,219 6,775,000 (9,166,500) 0 8,674,050 (492,450) Column Description: 1) Insurance premium financed by lender. 7) Net death benefit available after loan repayment. 2) Cumulative loan balance including current year premium and any accrued interest. 8) This premium maybe lower based on level death benefit option. 3) Loan interest rate is set by the lender and subject to change according to market fluctuations. 9) Level death benefit of non financed insurance policy. 4) Beginning of year interest payment based on the outstanding loan balance shown in col 2. 10) Comparison of cash outlay between financing (loan interest) vs. non financing (annual premium). Col 4 minus Col 8. 5) Interest accrued, not paid, and added to the loan balance. 11) The hypothetical investment growth rate. 6) Death benefit provided from the life insurance policy illustration. 12) Cumulative annual cash savings from financing; the amount saved growing at the assumed rate under col 11. *The Honeymoon Provision waives company imposed surrender charges for a full surrender of a policy during the first five policy years. The Honeymoon Provision of a universal life policy may reduce the premium finance collateral requirements by substituting accumulated values for cash values for years 1 5. Surrender charges will continue to apply to partial surrenders, loan amounts, and face reductions. The Honeymoon Provision is only available at issue on policies with a minimum required premium of $100,000 each year for five years. Presented by: Transamerica This is a sample supplemental illustration and must be presented with the complete product illustration. Loan terms and conditions mentioned are determined by lender. OLA 2033 Appendix A

21 Insured: UW Class: Carrier: Product Info: LOAN EXIT STRATEGY Valued Client Initial Trust Deposit: $0 (FEMALE) STANDARD NON SMOKER, Age 70 Interest Payment Option: ADVANCED Years of Accrual: 0 TransACE (R) / Face Amount : , DB Option: PREM PLUS/CVAT *Honeymoon Provision: Y FINANCED POLICY LOAN REPAYMENT STRATEGIES EOY Net DB EOY Loan EOY Loan GRAT Loan GRAT SNAPSHOT Annual Policy Cash Death Loan After Loan Repaid From Repaid From Distribution Repayment GRAT Term: 0% Year Premium Value* Benefit Balance Repayment Policy Values Other Source to Trust From GRAT Initial Deposit: $0 (1) (2) (3) (4) (5) (6) (7) (8) (9) Taxable Gift: $0 Growth Rate: 0.00% 1 800, ,114 10,800, ,000 10,000, Annual Pymt: $ ,000 1,342,753 11,600,000 1,600,000 10,000, Remainder: $ ,000 2,047,722 12,400,000 2,400,000 10,000, ,000 2,603,278 13,025,000 3,025,000 10,000, ,000 3,168,474 13,650,000 3,650,000 10,000, ,000 3,523,726 14,275,000 4,275,000 10,000, ,000 4,100,872 14,900,000 4,900,000 10,000, ,000 4,675,342 15,525,000 5,525,000 10,000, ,000 5,240,241 16,150,000 6,150,000 10,000, ,000 5,794,517 16,775,000 6,775,000 10,000, ,775, ,825,833 16,775,000 6,775,000 10,000, ,825,588 16,775,000 6,775,000 10,000, ,785,863 16,775,000 6,775,000 10,000, ,701,300 16,775,000 6,775,000 10,000, ,562,380 16,775,000 6,775,000 10,000, ,350,448 16,775,000 6,775,000 10,000, ,058,032 16,775,000 6,775,000 10,000, ,675,047 16,775,000 6,775,000 10,000, ,175,655 16,775,000 6,775,000 10,000, ,530,537 16,775,000 6,775,000 10,000, ,775, ,680,704 16,775,000 6,775,000 10,000, ,592,943 16,775,000 6,775,000 10,000, ,911 16,775,000 6,775,000 10,000, ,775,000 6,775,000 10,000, ,775,000 6,775,000 10,000, ,775,000 6,775,000 10,000, ,775,000 6,775,000 10,000, ,775,000 6,775,000 10,000, ,775,000 6,775,000 10,000, ,775,000 6,775,000 10,000, ,775,000 Column Descriptions: 1) Insurance premium financed by lender. 2) Non guaranteed cash value from the life insurance illustration. 3) Death benefit provided from the life insurance policy illustration. 4) Cumulative loan balance including total premium borrowed and any accrued interest. 5) Policy death benefit in excess of loan repayment. 6) Loan repayment from policy cash value withdrawal, if applicable. 7) Loan repayment from outside source, if applicable. 8) GRAT proceeds transfer to trust at the end of the GRAT term, if applicable. 9) Loan repaid from Grantor Retained Annuity Trust (GRAT), if applicable. *The Honeymoon Provision waives company imposed surrender charges for a full surrender of a policy during the first five policy years. The Honeymoon Provision of a universal life policy may reduce the premium finance collateral requirements by substituting accumulated values for cash values for years 1 5. Surrender charges will continue to apply to partial surrenders, loan amounts, and face reductions. The Honeymoon Provision is only available at issue on policies with a minimum required premium of $100,000 each year for five years. Presented by: Transamerica This is a sample supplemental illustration and must be presented with the complete product illustration. Loan terms and conditions mentioned are determined by lender. OLA 2033 Appendix A

22 - Quote for Required Annual Premium: $310,000 Tamra (MEC) Premium: $835, JANUARY 18, 2011 Version Current Values end at age 101 Guaranteed Coverage ends at age 101 Kind Code: 2429 C8 TAOV10 Target: 310,000 Underwriting Requirements: Medical, ABC, HOS, TRD, MVR, IR, PFS Summary of Values - (for more years please see the next page) Guaranteed Values Non-Guaranteed Values Year Age Premium Cash Value Accum Value Death Benefit Cash Value Accum Value Death Benefit , , ,114 10,800, , ,114 10,800, , ,753 1,342,753 11,600, ,753 1,342,753 11,600, ,000 1,696,723 2,047,722 12,400,000 1,696,723 2,047,722 12,400, ,000 2,318,278 2,603,278 13,025,000 2,318,278 2,603,278 13,025, ,000 2,940,475 3,168,474 13,650,000 2,940,475 3,168,474 13,650, ,000 3,309,049 3,525,049 14,275,000 3,523,726 3,739,726 14,275, ,000 3,647,830 3,852,830 14,900,000 4,100,872 4,305,872 14,900, ,000 3,958,806 4,151,805 15,525,000 4,675,342 4,868,341 15,525, ,000 4,233,321 4,414,321 16,150,000 5,240,241 5,421,241 16,150, ,000 4,464,096 4,632,095 16,775,000 5,794,517 5,962,516 16,775, ,775, ,775,000 Plan Summary Producer Name: Transamerica Sex: FEMALE Age: 70 Total Face Amount: $10,000,000 Declared Interest Rate: 4.00% Guaranteed Interest Rate: 4.00% Underwriting Class: Smoker/Nonsmoker: STANDARD NON-SMOKER Plan Type: Loan: Sub-Standard Rating: Flat Extra Rating: Flat Extra Years: PREM-PLUS/CVAT NO NO NO Initial Waiver Provision(s): $0.00 Accident Indemnity Rider: $0.00 CIR Rider: $$0.00 GIR Rider: $0.00 Form #: CA Annualized Initial Premium: $800, Lump Sum Amount: $0 As illustrated, policy is not a MEC. Modal Premium Summary ANNUAL Initial Premium: $800, INCOMPLETE DOCUMENT: NOT FOR CLIENT PRESENTATION.