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In this world, nothing is certain except ______________ and ______________ - PowerPoint PPT Presentation


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In this world, nothing is certain except ______________ and ______________. Death. Taxes. Benjamin Franklin. “. “. The difference between death and taxes is death doesn’t get worse every time Congress meets. Will Rogers. I am proud to pay taxes in the United States. The only

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slide1
In this world, nothing is certain except ______________ and ______________

Death

Taxes

Benjamin Franklin

The difference between

death and taxes is death

doesn’t get worse every

time Congress meets.

Will Rogers

I am proud to pay taxes in

the United States. The only

thing is I could be just as

proud for half the money.

Arthur Godfrey

NOT FOR CONSUMER USE.

slide2
Life Insurance in Retirement Planning

Presented by:

Joe Sample, [Designations per field stationery guidelines]

[Company Approved Title]

[Agency Name]

[The Prudential Insurance Company of America]

[1234 Main Street, Suite 1, Floor 10]

[Anywhere], [ST] [12345]

[in required states] [<ST> Insurance License Number <1234567890>]

Phone [123-123-1234] Fax [123-123-1245]

[joe.sample@prudential.com]

0250457-00001-00 Ed. 10/2013 Exp. 04/01/2015

NOT FOR CONSUMER USE.

agenda
Agenda

1

2

3

Well, Congress Just Met

Life Insurance! Now More than Ever!

What Do the Numbers Look Like?

Both loans and withdrawals from a permanent life insurance policy may be subject to penalties and fees and, along with any accrued loan interest, will reduce the policy’s account value and death benefit. Assuming the a policy is not a Modified Endowment Contract (MEC), withdrawals will generally be taxed only to the extent that they exceed the policyowner’s cost basis in the policy and usually loans are free from current federal taxation. A policy loan could result in tax consequences if the policy lapses or is surrendered while a loan is outstanding. Distributions from MECs are subject to federal income taxation to the extent of the gain in the policy and taxable distributions are subject to a 10% additional tax prior to age 59½, with certain exceptions.

NOT FOR CONSUMER USE.

3

clients who may benefit
Clients Who May Benefit…
  • High Income Earners

Doctors

Biz Owners

Executives

  • Married > $178,000 income
  • Single > $112,000 income
  • Under age 55 and need death benefitprotection
  • Maximizing traditional retirement plans
  • Additional income to allocate towards savings
  • Desire for tax “diversification”

Surgeons

Attorneys

Engineers

Dentists

Orthodontists

IT Managers

Yourself?

NOT FOR CONSUMER USE.

well congress just met
Well, Congress just met

Regarding the information on the subsequent slides: Both loans and withdrawals from a permanent life insurance policy may be subject to penalties and fees and, along with any accrued loan interest, will reduce the policy's account value and death benefit. Assuming a policy is not a Modified Endowment Contract (MEC), withdrawals are taxed only to the extent that they exceed the policy owner’s cost basis in the policy and usually loans are free from current federal taxation. A policy loan could result in tax consequences if the policy lapses or is surrendered while a loan is outstanding. Distributions from MECs are subject to federal income tax to the extent of the gain in the policy and taxable distributions are subject to a 10% additional tax prior to age 59 1/2, with certain exceptions.

NOT FOR CONSUMER USE.

federal income taxes for 2013
Federal Income Taxes for 2013

NOT FOR CONSUMER USE.

Marginal income tax rates shown are the result of the Patient Protection and Affordable Care Act and the American Taxpayer Relief Act of 2012.

insight from hindsight
Insight from Hindsight

Top Marginal Federal Ordinary Income and Capital Gain Tax Rates from 1913-2013

Sources: Tax Foundation, “Federal Individual Income Tax Rates History: Income Years 1913-2012”; Seeking Alpha, “U.S. Dividend, Cap Gains Tax Rate History: Possible Relevance to Future Taxation”; Citizens for Tax Justice, “Top Federal Income Tax Rates Since 1913,” as of 2013.

NOT FOR CONSUMER USE.

income tax allocation
Income Tax Allocation
  • Qualified
  • Tax Deferred
  • Qualified Plans
  • Pensions
  • Deductible IRAs
  • Non-Qualified Tax Deferred
  • Annuities
  • Non-Deductible IRAs

Distributions

100% Ordinary Income

Distributions

Ordinary Income to Extent of Gain

  • Non-Qualified Taxable
  • Stocks and Bonds
  • Mutual Funds
  • Cash Equivalents

Interest/Dividends

Ordinary Income

Realized Gains

Capital Gain

Distributions

Tax-Advantaged Income

  • Non-Qualified Generally Tax Free
  • Municipal Bonds
  • Federal income tax free
  • Roth IRAs/401(k)s
  • Federal income tax free
  • Life Insurance
  • Tax-deferred cash value accumulation
  • Generally federal income tax free when accessed through loans and withdrawals1
  • Generally income tax free death benefit1

NOT FOR CONSUMER USE.

1As it pertains to this strategy, the client must have a valid need for death benefit protection before considering the accumulation features of life insurance. Death benefit proceeds are generally received income tax free under IRC Section 101(a).

the seed vs the harvest
The Seed vs. The Harvest

versus

$100,000 Pre-Tax

@ 40% Tax Rate

$ 60,000 After-Tax

$1,006,267 Tax-Deferred

$ 603,759 A/T (@ 40%)

$ 503,133 A/T (@ 50%)

$ 704,387 A/T (@ 30%)

$ 603,759 Tax-Free

8% Growth

Tax-Deferred

for 30 Years

What’s the future effective tax rate going to be?

NOT FOR CONSUMER USE.

Hypothetical example for illustrative purposes only.

life insurance now more than ever
Life insurance! now more than ever

Life insurance policies contain fees and expenses, including cost of insurance, administrative fees, premium loads, surrender charges and other charges or fees that will impact policy values. Variable universal life insurance policies also have additional charges and fund operating expenses.

Guarantees are based on the claims paying ability of the issuing company.

NOT FOR CONSUMER USE.

the life insurance gap
The Life Insurance Gap
  • 3 in 10 Americans have no life insurance
  • 5 in 10 Americans say they need more

Source: LIMRA, 2012 Facts of Life

NOT FOR CONSUMER USE.

the retirement savings gap
The Retirement Savings Gap

What percentage of pre-retirement income can be provided by qualified plans and social security alone during retirement?

Income Replacement Goal

Qualified Retirement Benefits

Social Security Benefits*

*Based on calculations from www.socialsecurity.gov, August 30, 2011.

401k assumptions: Starts at age 45, Maximum contributions in the qualified plan, increased by a 3% COLA in $500 increments , Employer matches using safe harbor 401K match, Compensation increases 3% annually, 401K assets accumulate at 8%, Account balance amortized at retirement at 8% for 15 years, Retirement age 67

NOT FOR CONSUMER USE.

life insurance in retirement planning
Life Insurance in Retirement Planning
  • Lifelong death benefit protection to meet minimum protection needs*
  • Tax-deferred cash accumulation potential
  • Generally tax-free income potential
  • Hedge against premature DEATH
  • Hedge against increases in TAXES
  • Exempt from 3.8% Medicare surtax
  • Access, use and control pre-59½ and post-70½

*Assuming premiums paid and/or policy performance are sufficient

NOT FOR CONSUMER USE.

life insurance in retirement planning1
Life Insurance in Retirement Planning

Build it Backward

NOT FOR CONSUMER USE.

what do the numbers look like
What do the numbers look like?

If your cash contribution exceeds certain limits and your policy becomes a “Modified Endowment Contract” (MEC), as determined by the IRS, different tax rules, and in some cases, penalties apply for lifetime distributions, such as loans, withdrawals and assignments (including distributions made in the two years prior to becoming a MEC). A MEC can result from premium payments or from a reduction in coverage (such as the purchase of paid-up life insurance).

NOT FOR CONSUMER USE.

hypothetical client example
Hypothetical Client Example
  • Meet Linda M…
  • 45 years old and healthy
  • Married with two children
  • Successful corporate executive with high six figure income
  • Husband is a successful attorney
  • Both are max’ing qualified plans
  • She needs more life insurance and retirement savings options

NOT FOR CONSUMER USE.

example using prulife custom premier ii
[Example using PruLife Custom Premier II

8% hypothetical rate of return (7.32% net)

Female, age 45, preferred best, minimum non-MEC face amount, option B switch to A in year 21, solve for distributions to endow at age 121

The above values assume non-guaranteed policy charges. You must provide your client with a personalized illustration, which includes the impact of a 0% investment performance and guaranteed charges when selling a Prudential variable universal life insurance product. The illustration can also be generated based on a return assumption you select. This is not a complete illustration for PruLife Custom Premier II. You must prepare a personalized illustration that will show the impact of guaranteed interest rates and guaranteed charges for your clients when discussing a product’s benefits and features.

NOT FOR CONSUMER USE.

Hypothetical example, for illustrative purposes only. Actual results will vary.]

example using prulife custom premier ii1
[Example using PruLife Custom Premier II

0% hypothetical rate of return (-1.03% net) and Maximum Charges

Values above are based on the prior slide’s assumptions.

NOT FOR CONSUMER USE.

Hypothetical example, for illustrative purposes only. Actual results will vary.]

example using prulife custom premier ii2
[Example using PruLife Custom Premier II

Cost-Benefit Analysis:

Expense vs. Asset?

*The IRR on the net death benefit takes into account any prior distributions.

Values above are based on the prior slide’s assumptions.

NOT FOR CONSUMER USE.

Hypothetical example, for illustrative purposes only. Actual results will vary.]

prulife custom premier important information
[PruLife Custom Premier Important Information
  • [PruLife Custom Premier II is issued by Pruco Life Insurance Company in all states except New York, where it is issued by Pruco Life Insurance Company of New Jersey and offered through Pruco Securities LLC (member SIPC). Both are Prudential Financial companies located in Newark, NJ. Each is solely responsible for its own financial condition and contractual obligations.
  • Clients should consider the investment objectives, risks, and charges and expenses carefully before investing in the contract and/or underlying portfolios. This and other important information can be found in the prospectus and, if available, the summary prospectus. A copy of the prospectus may be obtained from www.prudential.com. Clients should read the prospectus carefully before investing.
  • It is possible to lose money by investing in securities.]

NOT FOR CONSUMER USE.

example using prulife index advantage ul
[Example using PruLife Index Advantage UL

(Advantage UL)

6% hypothetical illustrated interest rate

Female, age 45, preferred best, minimum non-MEC face amount, option B switch to A in year 21, solve for distributions to endow at age 121

The above values assume non-guaranteed policy charges. This is not a complete illustration for PruLife Index Advantage UL. You must prepare a personalized illustration that will show the impact of guaranteed interest rates and guaranteed charges for your clients when discussing a product’s benefits and features. Based on guaranteed charges and guaranteed crediting rates (0% for the index account), the policy as illustrated above would lapse at age 68 (year 24).

NOT FOR CONSUMER USE.

Hypothetical example, for illustrative purposes only. Actual results will vary.]

example using prulife index advantage ul1
[Example using PruLife Index Advantage UL

Cost-Benefit Analysis:

Expense vs. Asset?

*The IRR on the net death benefit takes into account any prior distributions.

Values above are based on the prior slide’s assumptions.

NOT FOR CONSUMER USE.

Hypothetical example, for illustrative purposes only. Actual results will vary.]

advantage ul important information
[Advantage UL Important Information
  • PruLife Index Advantage UL is issued by Pruco Life Insurance Company in all states except in New York where, if available, it is issued by Pruco Life Insurance Company of New Jersey.
  • The potential to build cash value in the Indexed Account is based on the performance of the S&P 500® Index (using an index growth cap and floor) on an annual point-to-point basis based on a 100% participation rate (subject to change). Money that is placed in the Indexed Account is not a direct investment in the S&P 500® Index. If amounts in the Indexed Account are withdrawn prior to the end of the one-year term, no interest will be credited.
  • The Index Growth Cap is generally stated as a percentage, which is the maximum rate of interest that will be credited at the end of the one year Index Segment Duration, regardless of changes to the designated index. The Index Growth Cap is declared for each Index Segment in advance of each Index Segment Duration. The Index Growth Cap is subject to change at our discretion, both up and down, but is guaranteed to never be less than 3.00%. Changes to the Index Growth Cap could result in different values than shown here. Changes are not tied to the performance of the underlying index and may be based on interest rates, market volatility, and other factors. Index Growth Caps and Floors may be different in selected states.
  • The S&P 500® Index is a product of S&P Dow Jones Indices LLC (“SPDJI”), and has been licensed for use by The Prudential Insurance Company of America for itself and affiliates including Pruco Life Insurance Company and Pruco Life Insurance Company of New Jersey (collectively "Pruco Life"). Standard & Poor's®, S&P®, and S&P 500® are registered trademarks of Standard & Poor's Financial Services LLC (“S&P”); Dow Jones® is a registered trademark of Dow Jones Trademark Holdings LLC (“Dow Jones”); and these trademarks have been licensed for use by SPDJI and sublicensed for certain purposes by Pruco Life. Pruco Life's products are not sponsored, endorsed, sold or promoted by SPDJI, Dow Jones, S&P, or their respective affiliates and none of such parties make any representation regarding the advisability of purchasing such product(s) nor do they have any liability for any errors, omissions, or interruptions of the S&P 500® Index. S&P 500® index values are exclusive of dividends.]

NOT FOR CONSUMER USE.

summary
Summary

1

2

3

Impact of Income Taxes

Life Insurance in Retirement Planning

Compelling Numbers

25

NOT FOR CONSUMER USE.

why life insurance in retirement planning
Why Life Insurance in Retirement Planning?

High Income Earners are in your existing book

  • Save time and energy!

Meet the needs of your clients

  • Retain them for life!

Easily grow and diversify your business

  • Life Insurance in Retirement Planning

Prudential Support and Resources

  • Point-of-sale, advanced markets, marketing materials, LIRP Supplemental Illustration

NOT FOR CONSUMER USE.

next steps
Next Steps
  • Identify prospects
  • Build and present case
  • Place case with Pru
  • High Income Earner Profile
  • Married > $178,000 income
  • Single > $112,000 income
  • Under age 55 and need death benefit protection
  • Maximizing traditional retirement plans
  • Additional monthly income to allocate towards savings
  • Desire for tax “diversification”

NOT FOR CONSUMER USE.

slide27

Important Considerations

  • Financial and medical underwriting will apply and sufficient premiums must be paid over time
  • Loans and withdrawals reduce policy cash value and death benefit and may have tax consequences
  • For loans to remain income tax-free, the policy must stay in force until death and non-MEC status
  • If classified as a MEC, policy distributions are taxable to the extent of gain on a LIFO basis (10% penalty rules may apply before age 59½)
  • Withdrawals in the first 15 policy years may have adverse tax consequences*
  • Exposure to market volatility if variable life is used
  • All guarantees within the policy are based on the claims-paying ability of the issuing company

*IRC Section 7702(F)(2) (B-C) retests life insurance contract withdrawals and face reductions and may cause adverse income tax consequences.

NOT FOR CONSUMER USE.

important considerations
Important Considerations

If premiums and/or performance are insufficient over time, the policy could lapse which would require additional out of pocket premiums to keep it in force.

If your client’s financial situation changes and they need to forego making premium payments to focus on paying other expenses, their life insurance death benefit may terminate and the results illustrated may not be achieved. Loans taken will become taxable upon policy surrender or lapse.

The accuracy of determining future needs and expenses is more critical for clients at older ages who have less opportunity to replace assets used for the strategy.

Your client should consider developing a comprehensive financial plan to take into account current and future income & expenses in conjunction with implementing a strategy discussed herein.

The death benefit protection offered by a life insurance policy can be a key component of a sound financial plan.

We recommend that your client consult their tax and legal adviser to discuss their specific situation before implementing any strategy discussed herein.

NOT FOR CONSUMER USE.

important information
Important Information
  • Life insurance policies contain exclusions, limitations, reductions of benefits, and terms for keeping them in force. Clients’ financial professional can provide them with costs, complete details, and a prospectus. All guarantees are subject to the financial strength and claims-paying ability of the issuer and do not apply to the variable investment options.
  • Life insurance is issued by The Prudential Insurance Company of America, Pruco Life Insurance Company (except in NY and/or NJ) and Pruco Life Insurance Company of New Jersey (in NY and/or NJ). Securities are offered through Pruco Securities, LLC. All are Prudential Financial companies located in Newark, NJ.
  • Prudential, the Prudential logo, and the Rock symbol are service marks of Prudential Financial, Inc. and its related entities.
  • This material is designed to provide general information about the subject matter covered. It should be used with the understanding that we are not rendering legal, accounting, or tax advice. Such services should be provided by a client’s own professional advisors. Accordingly, any information in this document cannot be used by any taxpayer for purposes of avoiding penalties under the Internal Revenue Code.

NOT FOR CONSUMER USE.