Vice President, CJA and Associates Over 25 years experience in the insurance industry Extensive knowledge of employee benefit planning, especially

Transcription

1 Vice President, CJA and Associates Over 25 years experience in the insurance industry Extensive knowledge of employee benefit planning, especially advanced planning techniques for small businesses Broad experience with life insurance products and operations

2 [Collar: ] [RMC ] [TC73443(0413)A] For financial professional use only, not for use with the public

3 Factors Impacting RETIREMENT Longer lifespan Rising cost of living Younger retirement age Taxes FOR PRODUCER USE ONLY - NOT FOR USE WITH THE PUBLIC 3

4 Section 79 BACKGROUND In 1964, Section 79 was added to the Internal Revenue Code IRS Revenue Procedures and provide safe harbors to determine the fair market value of an insurance policy. By 2006, several insurance companies revisited Section 79 and engineered specialized insurance products to correspond to the new IRS guidance. Today, Section 79 is a steadily growing industry with more employers taking interest in the power of Section 79. FOR PRODUCER USE ONLY - NOT FOR USE WITH THE PUBLIC 4

5 IUL Product BENEFITS Potential tax deferred accumulation Policy loans 2 Policy loans may be tax free Living benefits Market upside Product guarantees 1 1. Guarantees are dependent upon the claims-paying ability of the issuing company 2. Policy loans and withdrawals reduce the policy s cash value and death benefits and may result in a taxable event. Surrender charges may reduce the policy s cash values in early years. FOR PRODUCER USE ONLY - NOT FOR USE WITH THE PUBLIC 5

6 Section 79 BENEFITS Death benefit program Employer pays life insurance premiums for its employees and may deduct premiums to the extent permitted by law Employee pays tax based on formula in regulations Employee may own the policy FOR PRODUCER USE ONLY - NOT FOR USE WITH THE PUBLIC 6

7 Section 79 HOW IT WORKS ESTABLISH PROGRAM Business pays a premium which may be deductible BENEFIT IS CHOSEN Benefits are partially taxable to employees based on benefit selected LIFE INSURANCE POLICY Employee has all rights associated with policy & pays tax accordingly Benefit options: $50k TERM FULL TERM IUL POLICY 7

8 Section 79 SPECIFICS C-Corporation Rule of 10 < 10 employees 10 employees Plan Eligibility State Policy Loans Face Amount Reduction Indexing Strategy Underwriting Benefit Formula Option A, B, or C FOR PRODUCER USE ONLY - NOT FOR USE WITH THE PUBLIC 8

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10 Case Study CHIROPRACTOR Employees: State: Entity: Existing Insurance: Description: 1 Owner, 2 Full-Time Assistants California C-Corporation $50,000 of Group Term Business started in 2001 and has steadily grown over the last 10+ years. The owner takes an annual W-2 salary of approximately $200k. Of the 2 full-time assistants, one started in 2001 and the other started in The owner is considering taking on another Chiropractor in an effort to expand her business. FOR PRODUCER USE ONLY - NOT FOR USE WITH THE PUBLIC 10

11 Salary 200,000 Premium 85,000 Benefit 2,000,000 Salary 50,000 Premium 16,805 Benefit 500,000 Salary 35,000 Premium 7,298 Benefit 350,000

12 Case Study Options Premium Taxable Income Owner (A) Permanent 85,000 50,454 (B) Full Term 3,475 3,510 (C) $50k Term Assistant #1 (A) Permanent 16,805 8,182 (B) Full Term (C) $50k Term Assistant #2 (A) Permanent 7,298 3,818 (B) Full Term (C) $50k Term Hypothetical example for illustrative purposes only not representative of any particular policy. FOR PRODUCER USE ONLY - NOT FOR USE WITH THE PUBLIC 12

13 5 year program summary total after tax employer cost $256,830 total tax due from employee $95,877 total cost for owner ($256,830 + $95,877) $352,707 Annual Policy Loan $117,942 Total Policy Loans $2,358,840 Alternative investment equivalent $3,628,984 Hypothetical example for illustrative purposes only not representative of any particular policy. Total after-tax employer cost" is based on the assumption that premiums are fully deductible. The extent to which premiums are deductible depends upon the facts and circumstances of the employer, and CJA makes no representation in that regard. An employer must consult with its independent tax advisors. if the premiums are not fully-deductible, then the tax savings will not be realized. Policy loans and withdrawals reduce the policy s cash value and death benefit and may result in a taxable event. Surrender charges may reduce the policy s cash value in early years.

14 Case Study CHIROPRACTOR Case name: ##Section 79 PowerPoint Presentation FOR PRODUCER USE ONLY - NOT FOR USE WITH THE PUBLIC 14

15 Case Study DISCLOSURE The following illustration represents a life insurance product and does not represent an investment in the stock market. SecurePlus Advantage 79 Indexed Universal Life (IUL), is underwritten by Life Insurance Company of the Southwest, Dallas, TX, which is bound only by the terms of the life insurance contract it issues. This policy is not available in all states. CJA is not responsible for the guarantees of the issuing insurer. The following life insurance illustration assumes all available funds are invested in Indexed Strategy 2. For more information on Indexed Strategy 2, please refer to Life of the Southwest s website The maximum illustration rate for Indexed Strategy 2, 8.1% is based on the historical performance, from 1984 through 2013, of the S&P 500 Index with a participation rate of 140% and an index earning cap of 11.5%. The guaranteed minimum participation rate for this strategy is %, and the guaranteed minimum index earnings cap is 3.10% which would result in a maximum illustrated rate of 2.3%. The application of a lower assumed crediting rate would result in reduced current values on the subsequent pages. FOR PRODUCER USE ONLY - NOT FOR USE WITH THE PUBLIC 15

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19 Owner s A Policy BENEFITS 19

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21 Typical CLIENT Owns a small profitable business C Corporation exists or can be integrated Incomplete estate planning Has need for life insurance FOR PRODUCER USE ONLY - NOT FOR USE WITH THE PUBLIC 21

22 Practical APPLICATIONS Tax leverage and flexibility Other plans may be too costly Ability to stack plans Simplicity FOR PRODUCER USE ONLY - NOT FOR USE WITH THE PUBLIC 22

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24 Section 79 SERVICES National and Regional Sales Support Point-of-Sale Assistance Design & Illustrations Document Preparation Ongoing Administration Year-End Reporting FOR PRODUCER USE ONLY - NOT FOR USE WITH THE PUBLIC 24

25 Questions? FOR PRODUCER USE ONLY - NOT FOR USE WITH THE PUBLIC 25

26 Contact Information Doug Tashma Regional Vice President, Midwest CJA & Associates, Inc. 321 N. Clark Street Fifth Floor Chicago, IL Main: (239) x635 For Financial Professional Use Only - Not For Use With The Public

27 General DISCLOSURE This business strategy is offered and managed by an independent third party who is not affiliated with the companies of National Life Group. No National Life Group company nor anyone acting on its behalf has evaluated the strategy or is authorized to make any representation regarding the suitability, effectiveness, legality or the suitability of using life insurance or annuities in connection with the strategies use. This is not a solicitation of any product or service. Please consult your clients tax and/or legal advisors regarding whether this strategy is appropriate for their situation. National Life Group is a trade name of National Life Insurance Company, Montpelier, VT, Life Insurance Company of the Southwest, Addison, TX and their affiliates. Each company of National Life Group is solely responsible for its own financial condition and contractual obligations. Life Insurance Company of the Southwest is not an authorized insurer in New York and does not conduct insurance business in New York. FOR PRODUCER USE ONLY - NOT FOR USE WITH THE PUBLIC 27