Self Owned Life And Retirement (S.O.L.A.R.) Insurance Arrangements

Transcription

1 Self Owned Life And Retirement (S.O.L.A.R.) Insurance Arrangements Producer Guide

2 What Are S.O.L.A.R. Insurance Arrangements? The arrangement can be funded through employer contributions, through after-tax contributions from the employee, or a combination of both. While premium payments must be treated as ordinary income, the employee can borrow money from the Voya Indexed Universal Life-Global Choice (Voya IUL-Global Choice) life insurance policy to pay income taxes. The employee can use the policy as a potential source of supplemental retirement income,* as a source of survivorship benefits for his or her family, or both. S.O.L.A.R. Insurance Arrangements bring a two-part answer to the problem of providing supplemental retirement benefits for key employees. The first part involves a change in the Executive Benefits paradigm from traditional nonqualified deferred compensation arrangements funded with corporate-owned life insurance to benefit arrangements funded by life insurance which is owned by the employee. * A portion of the policy s surrender value may be available as a source of supplemental retirement income through policy loans and withdrawals. Income tax free policy distributions may be achieved by policy loans or withdrawing to the cost basis (usually premiums paid). This assumes the policy qualifies as life insurance, is not a modified endowment contract and is not lapsed or surrendered with an outstanding loan. The second part of the answer involves the introduction of a new life insurance product to help address some of the employee s additional concerns. Voya IUL-Global Choice offers a special type of policy loan which can be used by the employee to help pay income taxes associated with the S.O.L.A.R. Insurance Arrangement. Moreover, the Voya IUL-Global Choice product is an indexed universal life insurance policy with minimum guarantees. This can help take away some of the fears that a downturn in the market will cause a loss to an employee s surrender value. To fully appreciate the power of S.O.L.A.R. Insurance Arrangements and to share the story with clients you need to understand the Problem, the Paradigm, and the Product. 2

3 A Self Owned Life And Retirement (S.O.L.A.R.) Insurance Arrangement is an arrangement where an employee purchases a cash value life insurance policy to provide death benefit protection and to help accumulate funds for retirement. 3

4 The Problem Employee and Employer Needs One of the greatest challenges facing employees and employers today can be summed up in one word: Retirement. For employees, the problem is not having enough resources to meet their retirement needs. For employers, the problem is finding a tool to motivate key employees to remain with the business until they reach retirement age. By providing a tool that can be used by employers to help key employees with retirement planning (as well as provide death benefit protection), the S.O.L.A.R. Insurance Arrangement is a potential solution to today s great problem. Employee Need: A Tool to Help With Retirement Income Did You Know? The United States has an estimated Retirement Deficit of $6.6 Trillion. 1 53% of employees are highly concerned about outliving retirement money. 2 57% of employees say that compared to what they thought two years ago, they will need to save much more to achieve a comfortable level of retirement. 3 The first part of today s great problem is the growing need for retirement income. Traditional resources are under attack. There are questions about the future for funding Social Security and most employers have abandoned the old model of providing defined benefit pension plans. Additionally, today s employees have to be concerned about: (i) The effects of reverse discrimination, (ii) Increasing life expectancies, and (iii) The potential for increasing income tax rates. Many employees look to qualified retirement plans as an ideal place to make contributions for retirement savings. However, Congress has placed limits on how much can be contributed to these plans (the maximum contribution for 2012 is $17,000 apart from catch-up contributions for older workers). These contribution limits have an adverse effect on higher-paid employees which some describe as reverse discrimination. Salary Maximum Pre-Tax Deferral % $50, % $100, % $150, % $200, % $250, % The contribution limits for qualified retirement plans is a fixed amount regardless of what an employee actually earns. This means that higher paid employees cannot contribute the same ratio of pre-tax earnings to a 401(k) or other qualified retirement plan. This also means that the more money an employee makes, the less likely he or she would be able to contribute enough to a qualified plan to meet retirement goals. Compounding the problem of reverse discrimination is the potential increase in the duration of retirement due to the fact that people are living longer. According to the Board of Trustees of Social Security and Medicare, life expectancies in this country are increasing. 4 As life expectancies increase, the number of years a person will spend in retirement will also increase. And this means an increase in the amount needed to fund retirement income. Finally, there is increasing concern today that income tax rates may go up in the future. And if income tax rates go up, the net amount a retired person has for spending could go down. Since much of retirement saving is based on tools which allow for the contribution of pre-tax dollars (such as 401(k) Plans and other qualified plans) which are not taxed until distributions are taken during retirement, there is an inherent risk that the purchasing power of those dollars could be reduced if tax rates are increased in the future. The bottom line for employees today is that they are concerned about retirement savings. This is a need that S.O.L.A.R. Insurance Arrangements are designed to address. 4

5 Employer Need: A Tool to Recruit and Retain Key Employees Did You Know? 52% of U.S. companies have reported problems recruiting key employees. 5 79% of employees said they would pursue new job opportunities as the economy improves. 6 The cost of replacing key executives can be as high as 400% of the executive s annual salary. 7 The recent economy has been tough on everybody including employers. In the face of difficult times, many employers have been doing their best to stay afloat by cutting costs. They have frozen salaries, cut benefits, and when that was not enough they let go of employees. But losing employees even when it is because the business terminates their employment can be costly. Lost employees may mean lost productivity and this, in turn, may mean lost revenue. Cutting employees can cut costs, but it can also cut profits. The other problem is that now there may be no employees left to cut. The employees a business still has are its key employees. And despite the larger number of available workers over all, the key talent that employers need to drive their business is still hard to find. Even as recently as 2010, a majority of employers indicated that it is hard to recruit criticalskill employees. And what employers may not yet have considered is that if the economy improves, the situation could get worse. As many as 79% of employees have indicated a willingness to look for new job opportunities when the economy gets better. 8 So the bottom line for employers is the growing need even in tough economic times to recruit and retain key employees. Again, this is a need that S.O.L.A.R. Insurance Arrangements are designed to address. 1 Laura Bassett, U.S. Retirement Deficit Reaches $6.6 Trillion, Huffington Post (9/16/2010). 2 Met Life 8th Annual Study of Employee Benefits Trends (2010). 3 Towers Watson Survey of Retirement Attitudes (2010). 4 See 2004 Annual Report of the Board of Trustees of Social Security and Medicare. 5 Towers Watson Global Talent Management and Rewards Survey (2010). 6 FPC National Survey (January 2012) 7 The True Cost of Replacing an Employee, Executive Development Center Blog (June 2012) 8 FPC National Survey (January 2012). 5

6 The Paradigm Executive Benefits Funded Through Life Insurance Owned by the Employees S.O.L.A.R. Insurance Arrangements bring a paradigm shift in how Executive Benefits are structured. The traditional solution (the Old Paradigm ) has been to provide Executive Benefits through taxdeferred arrangements funded through the purchase of corporate owned life insurance ( COLI ). In the old paradigm employers used deferred compensation plans to recruit, retain, and reward key employees. These arrangements had many different names including nonqualified deferred compensation (or NQDC), supplemental executive retirement plans (or SERPs), 409A plans, salary continuation plans, or 401(k) look-alike plans. Essentially, these plans were a promise by the employer to pay an employee a future benefit. If structured appropriately, the employee paid no taxes until the benefit was received (tax deferral) and the employer would often purchase a life insurance policy (COLI) to help fund its obligations under the arrangement. These arrangements are governed by the rules of IRC 409A and require that the funding asset be unsecured and potentially exposed to the claims of the employer s creditors. The new paradigm begins with ownership of the funding asset (life insurance) by the employee. Instead of providing tax deferral, the employee pays taxes up front and has the potential to take tax-free distributions during retirement. 9 If structured properly, arrangements under the new paradigm will not be subject to 409A and there will be no exposure of the funding policy to the claims of the employer s creditors. Old Paradigm (COLI) Tax-deferral Taxable retirement income Policy owned by business New Paradigm (Self-Owned) Up-front taxes Tax-free retirement income Policy owned by employee Subject to 409A Not subject to 409A Exposure to employer s creditors No exposure to employer s creditors 9 A portion of the policy s surrender value may be available as source of supplemental retirement income through policy loans and partial withdrawals. Policy loans and partial withdrawals may vary by state, reduce available surrender value and death benefit or cause the policy to lapse. Generally, policy loans and partial withdrawals will not be income taxable if there is a withdrawal to the cost basis (usually premiums paid), followed by policy loans (but only if the policy qualifies as life insurance, is not a modified endowment contract and is not lapsed or surrendered). 6

7 How Does a S.O.L.A.R. Insurance Arrangement Work? In a S.O.L.A.R. Insurance Arrangement, an employee purchases a cash value life insurance policy to provide death benefit protection and to help accumulate funds for retirement. The arrangement can be funded through employer contributions (as a 162 bonus plan), through after-tax contributions from the employee, or a combination of both. While premium payments must be treated as ordinary income, the employee can borrow money from the Voya IUL-Global Choice life insurance policy to pay income taxes. The employee can use the policy as a potential source of supplemental retirement income, as a source of survivorship benefits, or both. step 1: The employer and the employee agree that personal life insurance protection and the related cash value accumulations are important components of the employee s overall compensation package. step 2: The employee purchases a Voya IUL-Global Choice policy insuring his or her life. step 3: The employer makes the premium payments on this policy, which are taxed as compensation to the employee and create a current deduction for the employer (if reasonable compensation). step 4: The employee pays income taxes on the bonused premium payments by borrowing money from the Voya IUL-Global Choice policy utilizing Select Loans. Select Loans have the risk that policy performance may be lower than projected if the amount credited to the account value in the Fixed Strategy and/or Indexed Strategy is less than the fixed 6% interest charged on the policy loan. Detailed additional information about policy loans is located in the policy form and any personal policy illustration. Optionally, the employer may provide an additional cash bonus to the employee to cover the income tax associated with the premium payment. step 5: The policy cash values may be or potentially are available to supplement the employee s retirement income through withdrawals and loans. Policy loans and withdrawals may reduce or eliminate index credits, generate an income tax liability, reduce available surrender value and reduce the death benefit, or cause the policy to lapse. For policies with the Early Cash Value Rider, policy loans and withdrawals may limit the benefits of the rider. Additionally, loans may limit the ability to make Elections to the Indexed Strategy. If a Traditional loan results in amounts being deducted from a Block prior to its Block Maturity Date, no Elections from the Fixed Strategy to the Indexed Strategy will be processed in the 18 months following the loan. The policy death benefit will generally be paid income tax free to the employee s beneficiaries. 7

8 S.O.L.A.R Insurance Arrangements as a Retention Tool The basic structure of a S.O.L.A.R. Insurance Arrangement offers employers a tool to recruit and reward employees by providing premium bonuses to help them purchase a Voya IUL-Global Choice life insurance policy for family protection and as a potential source of supplemental retirement income. But for those employers looking for a tool to retain key employees something more may be needed. The Voya Life Companies offers two variations of the S.O.L.A.R. Insurance Arrangement which may be used by employers as a retention tool: Incentive S.O.L.A.R. Insurance Arrangements and Restricted S.O.L.A.R. Insurance Arrangements. These variations of the S.O.L.A.R. Insurance Arrangement represent the carrot and stick approaches to persuading key employees to remain with the employer. Incentive S.O.L.A.R. Insurance Arrangements: The Carrot Approach An Incentive S.O.L.A.R. Insurance Arrangement is an arrangement where an employer makes premium payments on a cash value life insurance policy owned by an employee. While the employee must recognize the premium payments as ordinary income, the employee can borrow money from the Voya IUL-Global Choice life insurance policy to pay income taxes. In addition, the employer promises to make future bonus payments if the employee remains with the employer which can be used to pay the interest owed on policy loans. These additional bonus payments provide an incentive ( Golden Handcuffs ) for the employee to remain with the employer. An Incentive S.O.L.A.R Insurance Arrangement may be subject to IRC 409(A) and to ERISA plan requirements; failure to satisfy the requirements of IRC 409(A) may result in the loss of tax deferral, the immediate taxation of all current and previously deferred income, interest payments and significant tax penalties. The employer and the employee should seek tax or legal advice for more information. The Voya Presents illustration software allows for the illustration of incentive bonuses every five years and/or at retirement. 8

9 Restricted S.O.L.A.R. Insurance Arrangements: The Stick Approach A Restricted S.O.L.A.R. Insurance Arrangement is an arrangement where an employer makes premium payments on a cash value life insurance policy owned by an employee. In addition, the employer and employee enter into a supplemental employment agreement which provides an incentive ( Golden Handcuffs ) for the employee to remain with the employer. Typically, the agreement spells out terms and conditions that will motivate the employee to remain with the employer for an agreed upon time period. The cash values of the life insurance policy are not available to the employee until the terms of the supplemental employment agreement have been fulfilled. While the employee must recognize the premium payments as ordinary income, the employee can borrow money from the Voya IUL-Global Choice life insurance policy to pay income taxes. After expiration of the policy restrictive rights, the employee can use the policy as a potential source of supplemental retirement income, as a source of survivorship benefits for his or her family, or both. The Restricted S.O.L.A.R. Insurance Arrangement assumes that income taxation is pursuant to IRC 61 and IRC 162 and is not subject to IRC 409(A) or IRC 83, regardless of the use of a restriction on access to policy values. It may also be subject to ERISA plan requirements. If IRC 409(A) were to apply, the potential tax benefits associated with this strategy may not be realized. The employer and the employee should seek tax or legal advice for more information. The employer and the employee may consider several different types of restrictions as they negotiate their Restricted S.O.L.A.R. Insurance Arrangement. For example, the employer may want to limit the employee s ability to access policy cash values for a number of years or limit the employee s ability to transfer ownership for a defined period of time. The employer may use certain restrictions as an incentive for the employee to stay with the company so he/she can continue to receive bonuses with which to pay premiums. Or the employer may be concerned that the employee may access the policy s values prematurely, compromising the long-term usefulness of the arrangement. The employer and the employee may agree to execute a restrictive endorsement or other form to modify the employee s ownership rights in the policy. Once executed, this form should be filed with the insurance company issuing the policy. Among the rights which may be restricted are the rights to surrender the policy, make a policy loan or pledge the policy as collateral for a loan. The endorsement can require that the employer must consent in writing to the exercise of such ownership rights before the employee may exercise them. The restrictions do not limit the employee s right to unilaterally designate and change policy beneficiaries, but the written consent of the employer to exercise other ownership rights could be required. The Voya Life Companies have developed a specimen modification of ownership rights form that can be given to a client to assist their tax and legal advisors in restricting access to the policy s cash values. This form is included in the Appendix to this Producer Guide. Both the employer and employee should review the form with legal counsel to ensure that it meets their respective needs. Did You Know? The restrictive endorsement can be designed to expire at a defined point in the future, such as: A specified age attained by the employee A specific date Upon the employee s retirement A change in business ownership. 9

10 In addition to the modification of ownership rights, a supplemental employment agreement drafted by legal counsel may also be used to handcuff the employee. For example, an employment agreement could have a liquidated damages clause requiring the employee to pay an agreed upon amount of damages to the employer in the event the employee violates the terms of the supplemental employment agreement. Such a provision allows the employer to recover some of its costs in the event the employee terminates employment prior to the date agreed upon by the parties. The following are examples of liquidated damages clauses that could be included in a supplemental employment agreement: Example 1 - All Bonuses: If Employee ceases to make his/her services available to Employer prior to Termination of Agreement, Employee agrees to repay as liquidated damages to employer all Bonuses paid pursuant to this Agreement. Example 2 - Limited Damages: If Employee ceases to make his/her services available to Employer prior to Termination of Agreement, Employee agrees to repay as liquidated damages to Employer all bonuses paid pursuant to this Agreement within years of such termination. The employment agreement is a separate legal agreement between the employer and employee. It is through this agreement (rather than through the policy endorsement or modification of ownership rights filed with the insurance company) that the employer may be able to recover amounts expended for bonus payments. The restrictive endorsement or modification of ownership rights does not give the employer any access to the policy s cash value. Therefore, the recovery of the liquidated damages requires enforcement of the employment contract (which may include litigation in a court of law) if the employee has breached the terms of the agreement. Appendix One has a specimen provision. Enforcing the employment agreement to recover the bonus payments may be expensive and time consuming. The employer may have to bring a lawsuit against the employee and incur the costs of litigation. Once a lawsuit is started, it may take a long time before the case is decided. If the employer wins and receives a judgment against the employee, the employer may then be able to attach the life insurance policy or the employee s other assets to satisfy the judgment. The process could take years to play out and there is no guarantee the employer will be victorious. Even if the employer wins, they may not be able to recover the court costs, attorney s fees and other expenses of litigation. There is no authoritative guidance regarding whether adding restrictive endorsements to bonus arrangements will cause them to become ERISA pension plans. The answer depends on the particular facts and circumstances involved and whether the arrangement primarily provides retirement income. The client s tax advisor must carefully evaluate any restricted bonus arrangement and consider the possibility of ERISA applicability. 10

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12 The Product Voya IUL-Global Choice Issued by Security Life of Denver Insurance Company The second part of the unique solution offered by S.O.L.A.R. Insurance Arrangements is the product used to fund these arrangements: the Voya IUL-Global Choice policy. Voya IUL-Global Choice offers an alternative to the variable universal life insurance policies typically used to fund COLI arrangements. The Voya IUL-Global Choice policy alternative offers an indexed life insurance product which uses three stock indexes, has two indexed strategies which offer the power of hindsight, and offers Select Loans to help employees reduce out-of-pocket costs associated with S.O.L.A.R. Insurance Arrangements. Voya IUL-Global Choice is an indexed life insurance policy. What sets indexed universal life apart from more traditional universal life insurance is the opportunity for cash value accumulation through index crediting potential based, in part, on the performance of a stock market index or indexes. Plus, the policy has a guaranteed minimum interest rate of 0%, regardless of whether index credits are applied to the policy. All guarantees are based on the financial strength and claims paying ability of Security Life of Denver Insurance Company, who is solely responsible for all obligations under its policies. The power of Voya IUL-Global Choice is the valuable death benefit protection supported by policy cash values calculated under an index crediting formula. Moreover, Voya IUL-Global Choice offers policy owners the ability to choose between three different Indexed Strategies: (i) a single index (the S&P 500 ) with one-year point-to-point crediting, (ii) a global index strategy (the S&P 500, the EURO STOXX 50 Index, and the Hang Seng Index) with two-year point-to-point crediting, and (iii) a global index strategy (the S&P 500, the EURO STOXX 50 Index, and the Hang Seng Index) with five-year point-to-point crediting. 12

13 The Power of an Indexed Strategy with Hindsight Hindsight is 20/20 and quite valuable. Voya IUL-Global Choice, an indexed universal life insurance product with death benefit protection, is designed to allow policy owners to benefit from this insight. Along with a Fixed Strategy, Voya IUL-Global Choice has three Indexed Strategies that credit interest based upon a portion of the increases, if any, in an Index or Indexes. The S&P Year Point to Point Indexed Strategy measures the increases, if any, in the S&P 500 from the beginning to the end of the 1 year time period to help determine the Index Credit, if any (subject to an Index Cap). There can be as many as 12 Blocks (if the policy owner started one Block in each month of the year) in this strategy. So if the S&P 500 ends up higher than when it originally started one year prior at the beginning of the Block, that Block would earn an Index Credit (subject to an Index Cap). Both the 2 year and 5 year Global Indexed Strategies use the S&P 500, EURO STOXX 50, and Hang Seng Indexes. The Global Indexed Strategies are designed to allow your client to benefit from the value of hindsight. That s because at the end of each 2-year or 5-year period, a portion of only the top two Indexes are used in the Index Credit calculation. The Index with the lowest change rate is never used. No guesswork to try and predict the better performing Indexes in the beginning. Voya IUL-Global Choice also has an Alternate Guaranteed Account Value with a 1% minimum interest guarantee. If greater than the policy s Account Value, the Alternative Guaranteed Account Value is used in the benefits calculation only at the time of death or surrender of the policy. See the Voya IUL-Global Choice Producer Guide (#164147) for details on how the index credit is calculated. Please note: While policy values may be affected by external indexes, the policy is not an investment in the stock market and does not participate in any index fund, stock or equity investments. This product is not designed to be an investment vehicle. Voya IUL-Global Choice is not a variable product or any type of investment contract. 13

14 Using Select Loans to Reduce Out of Pocket Costs Associated with S.O.L.A.R. Insurance Arrangements Select Loans are available to Voya IUL-Global Choice policy holders as a flexible alternative for reducing out of pocket costs associated with S.O.L.A.R. Insurance Arrangements. While premium payments in S.O.L.A.R. Insurance Arrangements must be treated as ordinary income, the employee can borrow money from the Voya IUL-Global Choice life insurance policy to pay income taxes. Select Loans differ from Traditional Loans in that while the amount borrowed from the policy by the policy owner is considered a policy loan (and added to the loan amount against the policy), the loan does not reduce the amount that is allocated to the Fixed and/or Indexed Strategy elected by the policy owner. Thus, Select Loans potentially offer policy owners the ability to reduce out of pocket costs while still enjoying the potential offered by Voya IUL-Global Choice. Select Loans are policy loans in which an amount equal to the loan or Loan Interest due is added to the Loan Amount while remaining in the Fixed Strategy and/or Indexed Strategy as elected by the policy owner. The interest rate charged on the Loan Amount for a Select Loan is fixed at 6% per year, regardless of the index credits earned and/or the credited interest rates. Select Loans have the risk that the amount credited will be less than the interest charged on the policy loan. As a result the policy performance may be lower than projected. Without additional premium or loan interest payments, the policy could lapse. With Select Loans the net result of having a policy loan varies depending on the index credits earned and/or the credited interest rates on the account value. For example, if the account value earns over time an average of 9%, the net result of Select Loans is a net gain of 3% (9% earned rate less 6% charged rate). On the other hand, if the account value earns over time an average of only 1%, the net cost of Select Loans is 5% (6% charged rate less 1% earned rate). Net Loan Streamlines Money Flow In addition to selecting the type of loan the policy owner may wish to use, either Select or Traditional, the policy owner must also choose how to have the loan proceeds distributed. They may choose a traditional distribution of sending the loan proceeds to themselves and may use those to pay income taxes due or reimburse themselves for taxes paid or for other purposes. Or the policy owner may choose a Net Loan distribution where the loan proceeds are applied to the policy as an additional premium deposit. The Net Loan approach can streamline the loan process and minimize the flow of money while still producing the same end result if a Traditional or Select Loan was chosen. The Net Loan simply directs the loan amount into the policy as a premium payment. In effect, this is a way to acknowledge the potential income tax implications of this plan design while eliminating the need for the policy owner to have to front the cost of the taxes and later be reimbursed from a loan. Once the Net Loan is processed and is on the policy, it acts just like the current Traditional or Select Loan. Executives eligible for non-qualified employer-funded retirement benefits may find Net Loans particularly effective when they receive bonuses with taxes withheld and want to put the entire bonus amount in their policy with minimal administrative work. Please note that this hypothetical example describes a financial result only and that interest charged on the loan that is not paid in cash is added to the loan amount and, in turn, results in increased loan interest charges. 14

15 Conclusion The story of S.O.L.A.R. Insurance Arrangements is the story of a Problem, a Paradigm, and a Product. The Problem The Paradigm The Product The Problem can be summed up in one word: Retirement. For employees, the problem is not having enough resources to meet their retirement needs. For employers the problem is finding a tool to motivate key employees to remain with the business until they reach retirement age. By providing a tool that can be used by employers to help key employees with retirement planning, the S.O.L.A.R. Insurance Arrangement is a potential solution to today s great problem. The Paradigm is a shift away from the old Executive Benefits model of providing tax deferred benefits funded by COLI. The new paradigm transfers ownership of the funding asset (life insurance) to the employee. Instead of providing tax deferral, the employee pays taxes up front and has the potential to take tax-free distributions during retirement. 10 If structured properly, arrangements under the new paradigm will not be subject to 409A and there will be no exposure of the funding policy to the claims of the employer s creditors. The Product is the Voya IUL-Global Choice life insurance policy. Voya IUL-Global Choice is an indexed universal life insurance product which offers a choice between three Index Strategies, has the power of hindsight, and offers Select Loans to help employees reduce outof-pocket costs associated with S.O.L.A.R. Insurance Arrangements. S.O.L.A.R. Insurance Arrangements bring a flexible and powerful answer to the problems facing today s employees and employers. They can provide significant death and retirement benefits to employees, while providing employers a tool for recruiting and retaining those employees. Voya Life Insurance Companies can provide the products and support to bring it all together. Contact your Voya Life Companies Representative or call , option 4, for more details. 10 A portion of the policy s surrender value may be available as a source of supplemental retirement income through policy loans and withdrawals. Income tax free policy distributions may be achieved by policy loans or withdrawing to the cost basis (usually premiums paid). This assumes the policy qualifies as life insurance, is not a modified endowment contract and is not lapsed or surrendered with an outstanding loan. Policy loans may reduce or eliminate Index Credits, generate an income tax liability, reduce available Surrender Value and reduce the death benefit, or cause the policy to lapse. For policies with the Early Cash Value Rider, policy loans and withdrawals may limit the benefits of the rider. Additionally, loans may limit your ability to make Elections to the Indexed Strategy. If a Traditional loan results in amounts being deducted from a Block prior to its Block Maturity Date, no Elections from the Fixed Strategy to the Indexed Strategy will be processed in the 18 months following the loan. 15

16 Indexes EURO STOXX 50 Index An Index of blue-chip stocks that are represented by 50 stocks covering the largest sector leaders in the EURO STOXX 50 Index. It does not reflect dividends payable on the underlying stocks. STOXX Limited, Zurich, Switzerland and its licensors (the Licensors ) have no relationship to Security Life of Denver Insurance Company ( Security Life ), other than the licensing of the EURO STOXX 50 Index and the related trademarks for use in connection with the Voya Indexed Universal Life Global Choice ( Voya IUL-Global Choice ) insurance policy. STOXX and its Licensors do not: (1) Sponsor, endorse, sell or promote the Voya IUL-Global Choice policy; (2) Recommend that any person invest in the Voya IUL-Global Choice policy or any securities; (3) Have any responsibility or liability for or make any decisions about the timing, amount or pricing of the Voya IUL-Global Choice policy; (4) Have any responsibility or liability for the administration, management or marketing of the Voya IUL-Global Choice policy; or (5) Consider the needs of the Voya IUL-Global Choice policy or the owners of the Voya IUL-Global Choice policy in determining, composing or calculating the EURO STOXX 50 Index or have any obligation to do so. The Hang Seng Index (the Index ) The Hang Seng Index (the Index ) is published and compiled by Hang Seng Indexes Company Limited pursuant to a license from Hang Seng Data Services Limited. The mark and name Hang Seng Index are proprietary to Hang Seng Data Services Limited. Hang Seng Indexes Company Limited and Hang Seng Data Services Limited have agreed to the use of, and reference to, the Index by Security Life of Denver Insurance Company ( Security Life ) in connection with this Indexed universal life insurance policy (the Policy ), BUT NEITHER HANG SENG INDEXES COMPANY LIMITED NOR HANG SENG DATA SERVICES LIMITED WARRANTS OR REPRESENTS OR GUARANTEES TO ANY BROKER OR HOLDER OF THE POLICY OR ANY OTHER PERSON (i) THE ACCURACY OR COMPLETENESS OF THE INDEX AND ITS COMPUTATION OR ANY INFORMATION RELATED THERETO; OR (ii) THE FITNESS OR SUITABILITY FOR ANY PURPOSE OF THE INDEX OR ANY COMPONENT OR DATA COMPRISED IN IT; OR (iii) THE RESULTS WHICH MAY BE OBTAINED BY ANY PERSON FROM THE USE OF THE INDEX OR ANY COMPONENT OR DATA COMPRISED IN IT FOR ANY PURPOSE, AND NO WARRANTY OR REPRESENTATION OR GUARANTEE OF ANY KIND WHATSOEVER RELATING TO THE INDEX IS GIVEN OR MAY BE IMPLIED. The process and basis of computation and compilation of the Index and any of the related formula or formulae, constituent stocks and factors may at any time be changed or altered by Hang Seng Indexes Company Limited without notice. TO THE EXTENT PERMITTED BY APPLICABLE LAW, NO RESPONSIBILITY OR LIABILITY IS ACCEPTED BY HANG SENG INDEXES COMPANY LIMITED OR HANG SENG DATA SERVICES LIMITED (i) IN RESPECT OF THE USE OF AND/OR REFERENCE TO THE INDEX BY SECURITY LIFE IN CONNECTION WITH THE POLICY; OR (ii) FOR ANY INACCURACIES, OMISSIONS, MISTAKES OR ERRORS OF HANG SENG INDEXES COMPANY LIMITED IN THE COMPUTATION OF THE INDEX; OR (iii) FOR ANY INACCURACIES, OMISSIONS, MISTAKES, ERRORS OR INCOMPLETENESS OF ANY INFORMATION USED IN CONNECTION WITH THE COMPUTATION OF THE INDEX WHICH IS SUPPLIED BY ANY OTHER PERSON; OR (iv) FOR ANY ECONOMIC OR OTHER LOSS WHICH MAY BE DIRECTLY OR INDIRECTLY SUSTAINED BY ANY BROKER OR HOLDER OF THE POLICY OR ANY OTHER PERSON DEALING WITH THE POLICY AS A RESULT OF ANY OF THE AFORESAID, AND NO CLAIMS, ACTIONS OR LEGAL 14 For agent use only. Not for public distribution. PROCEEDINGS MAY BE BROUGHT AGAINST HANG SENG INDEXES COMPANY LIMITED AND/OR HANG SENG DATA SERVICES LIMITED IN CONNECTION WITH THE POLICY IN ANY MANNER WHATSOEVER BY ANY BROKER, HOLDER OR OTHER PERSON DEALING WITH THE POLICY. Any broker, holder or other person dealing with the Policy does so therefore in full knowledge of this disclaimer and can place no reliance whatsoever on Hang Seng Indexes Company Limited and Hang Seng Data Services Limited. For the avoidance of doubt, this disclaimer does not create any contractual or quasi-contractual relationship between any broker, holder or other person and Hang Seng Indexes Company Limited and/or Hang Seng Data Services Limited and must not be construed to have created such relationship. The S&P 500 Index The S&P 500 Index is an Index of the stock performance of 500 publicly traded companies that does not reflect the dividends payable on the underlying stocks. Standard & Poor s, S&P, S&P 500 are registered trademarks of Standard & Poor s Financial Services LLC and have been licensed for use by Security Life of Denver Insurance Company. The Policy is not sponsored, endorsed, sold or promoted by Standard & Poor s and Standard & Poor s makes no representation regarding the advisability of investing in the Policy. 16

17 Appendix One: Specimen Provision to Include in Employment Agreement (These provisions may be included in a comprehensive Employment Agreement between the Employer and the Employee. However, as these are specimen provisions, the Employer, Employee and their respective advisors should determine the extent to which a particular provision suits their needs.) 1. Employer agrees to pay Employee an annual bonus which is to be used to pay premiums on a life insurance policy insuring the Employee s life; this bonus may be paid directly to the Employee who will then use it to pay the policy premium or the Employer may instead pay the bonus directly to the life insurance company issuing the policy. The Employee or a person or trust designated by the Employee shall be the owner of the life insurance policy. 2. Employee shall name one or more beneficiaries of this life insurance policy and may change the beneficiary designation as often as desired; Employer will not be a beneficiary of any part of the policy death benefit. 3. With the exception of the right to name and change the policy beneficiary, the Employee s ability to exercise any other ownership rights in the policy is restricted and may only be exercised with the prior written consent of the Employer. 4. The terms of this restriction are those contained in the Restrictive Endorsement form attached to this agreement. Employer and Employee each agree to execute this Restricted Endorsement and the Employer shall file it with the life insurance company issuing the policy. Employer shall file written notice with the insurance company revoking its right to consent to the exercise of ownership the Employee s ownership rights upon the occurrence of any of the following events: 1. Employee reaches the age of and is still employed by Employer; 2. Employee and Employer agree in writing to terminate the Restrictive Endorsement; 3. Employer declares bankruptcy or is dissolved; 4. Employee dies. 5. Employer is not entitled to receive any benefits from the life insurance policy on the Employee s life at any time. 6. Employee is solely responsible for paying any and all taxes that are due as the result of the Employer s payment of funds that are used to pay the policy premiums. 7. (Optional Premium Recovery Provision) In the event Employee violates any provision of this Employment Agreement, the Employer may terminate this Agreement and sue the Employee to recover all or part of the funds it has provided directly or indirectly to the Employee for the payment of policy premiums. If the Employer obtains a judgment against the Employee, Employer may seek to satisfy its judgment from any of the Employee s assets, including the life insurance policy. 8. This provision may only be modified in a writing signed by both Employer and Employee. This information included in Appendix One is prepared by Pentera Group, Inc. of 5546 Shorewood Drive, Indianapolis, Indiana 46220; a source Voya believes to be reliable, but cannot guarantee or represent its accuracy or completeness. The material is designed to provide accurate and authoritative information on the subjects covered. It s not, however, intended to provide specific legal, tax or other professional advice. For specific professional assistance, the services of an appropriate professional should be sought. Because investors situations and objectives vary, this information is not intended to indicate suitability for any particular investor. The opinions are those of the third party, and the opinions and information presented are subject to change without notice. Pentera Group, Inc. is not affiliated with the Voya family of companies. 17

18 Appendix Two: Specimen Modification of Ownership Rights The specimen document below may be given to a client to assist tax and legal advisors in the drafting of Modification of Ownership Rights Agreement; other specimen legal documents may be available through AMO (Advanced Markets Online). 18

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20 These materials are not intended to and cannot be used to avoid tax penalties and they were prepared to support the promotion or marketing of the matters addressed in this document. Each taxpayer should seek advice from an independent tax advisor. The Voya Life Companies and their agents and representatives do not give tax or legal advice. This information is general in nature and not comprehensive; the applicable laws change frequently and the strategies suggested may not be suitable for everyone. Each taxpayer should seek advice from his or her tax and legal advisors regarding their individual situation. Voya Indexed Universal Life - Global Choice (Voya IUL-Global Choice), policy form series # /12 has an equity Indexed feature, varies by state and may not be available in every state. It is issued by Security Life of Denver Insurance Company (Denver, CO), a member of the Voya family of companies. Not available in New York. The Index Cap and Index Participation Rate are subject to change for new Index Blocks. All guarantees are based on the financial strength and claims paying ability of Security Life of Denver Insurance Company who is solely responsible for the obligations under its own policies. Voya Indexed Universal L ife Global Choice (Voya IUL-Global Choice) IS A FLEXIBLE PREMIUM ADJUSTABLE UNIVERSAL LIFE INSURANCE POLICY THAT OFFERS A DEATH BENEFIT TO THE BENEFICIARIES OF THE POLICY AND MAY BE PURCHASED TO MEET LIFE INSURANCE NEEDS. WHILE THE POLICY SURRENDER VALUES MAY BE DETERMINED BY REFERENCE TO AN INDEX-LINKED CREDITING STRATEGY, SUCH SURRENDER VALUES SUPPORT THE DEATH BENEFIT OFFERED UNDER THE POLICY. THIS POLICY DOES NOT PARTICIPATE IN ANY INDEX FUND, STOCK, OR EQUITY INVESTMENTS. THIS POLICY IS NOT A VARIABLE CONTRACT OR AN INVESTMENT CONTRACT. Voya IUL-Global Choice may not be used in a Funded ERISA Plan which includes the following types of employee pension and benefit plans and arrangements: tax qualified plans (i.e., I.R.C. 401(a) profit sharing, defined benefit and defined contribution plans) and funded welfare benefit plans (i.e., I.R.C. 419 and I.R.C. 419A plans, VEBAs, and plans that hold the policy in a secular trust). Not FDIC/NCUA Insured Not A Deposit Of A Bank Not Bank Guaranteed May Lose Value Not Insured By Any Federal Government Agency For agent use only. Not for public distrubution Voya Services Company. All rights reserved. CN /01/2014 Voya.com