Creative Uses of Traditional Life Insurance Products Larry R. Gibson, CFA Vice President

1. Capital G Private Wealth Conference 2013 Creative Uses of Traditional Life Insurance Products Larry R. Gibson, CFA Vice President

2. Agenda • Risk retirees face • Introduction to our company • Basic Products • Life Insurance Trust • Creative applications of traditional • products • Questions and Answers

3. Colonial Group International A Large Regional Player – CGI has doubled in size every 5 years since 1979 BERMUDA (Head Office) Colonial Group International Manages $390M in pension assets Underwrites $300M in premium income Capital in excess of $180M $60M in annual pension contributions 280 staff in 5 jurisdictions Colonial Insurance General Insurance Provider Colonial Medical Group Medical Provider Colonial Life Life Insurance Provider (Individual and Group) Colonial Pensions Group Pensions and Individual Investments • THE BAHAMAS • Atlantic Medical Insurance Group Medical Insurance Provider • Security & General Insurance General Insurance Provider • Colonial Pension Services (Bahamas) Individual and Group Pensions Provider Rated A- (Excellent) by AM BEST BRITISH VIRGIN ISLANDS Colonial Insurance (BVI) Group Medical General Insurance Life Insurance Pensions CAYMAN ISLANDS British Caymanian Insurance Company Ltd General Insurance Provider British Caymanian Insurance Agencies Ltd Group and Individual Medical Insurance Group Pensions Provider Life Insurance (Individual & Group)

4. Impact of Global Life Insurance Industry SwissRe- Swiss Reinsurance - Board of Governors of the Federal Reserve NAIC- National Association of Insurance Commissioners BLS- Bureau of Labor statistics LIMRA - Life Insurance and Market Research Association

5. Life Insurance Coverage Gap

6. Traditional role of Life Insurance • Upon the death of the insured, Life Insurance can potentially: • Create an estate- to help provide finance, dignity and independence for loved ones, or create a legacy for heirs or for a charity. or • Preserve an estate- settle an outstanding mortgage, provide a succession plan for a business help settle estate death tax.

7. Types of Life Insurance • Term Life - Protection for a specified period, face amount of policy paid in the event of death. Used when: • Need is temporary • Need is permanent but insured cannot afford premium for permanent Life Insurance. • Insured wants “pure” protection and invest savings or investment dollars elsewhere. • Whole Life - Furnishes protection for one’s whole life. Premiums may be paid… • Throughout insured’s life time • Over a limited period • In one lump sum

8. Term Insurance • Level Term • Specified level amount of insurance and level premium for initial period of contract. • Decreasing Term • Death benefit decreases over period of contract, level premium. Most economical of the three types of Term Insurance. • Renewable Term • At the end of each term (5-10 Yrs) premiums will increase to a higher level, death benefit remains the same. This becomes an expensive plan in later years. Level $50,000 $40,000 $30,000 $20,000 $10,000 $0 Death Benefit Payable Premium Rates Age 35 Age 40 Age 45 30 40 45

9. Whole Life Insurance • Has a savings or cash value component. • Early years of premium more than enough to pay the current cost of insurance protection. • The excess makes up the deficiency of premium in later years when annual premium is not sufficient to pay annual cost of insurance. These extra premiums are held by the insurer, creating the “cash value” of the policy. At age 100 CSV = Face Value Constant Face Value No CSV in early years

10. Unit Linked vs. Universal Life • Universal Life • Face Value of Policy remains constant • Accumulation Fund (AF) subject to market risk • Projected value of AF may not be realized • Some structures guarantee a minimum return • Unit Linked/Variable Life • Face Value of Policy varies depending on value of accumulation fund • Policy life could be shortened • Contractual Reviews – important • Investment risk with Insured Cash Value Constant Face Value Cash Value Initial Face Value Reduced Face Value

11. Optional riders and benefits Optional riders and benefits vary from company to company at additional cost. The most common ones are: • Accidental Death Benefit - Pays twice the death benefit if death occurs by accident. • Accelerated Death Benefit - If diagnosed with a terminal illness with 12 months to live, policy is paid in full. • Convertibility Option - Convert a Term Policy to a Whole Life Policy without proof of insurability. • Premium Waiver - Waives the monthly deduction charges if the insured meets the definition of disability.

12. Reality • Most persons take out Life Insurance when they become parents orhomeowners… but some of the most interesting uses of Life Insurance can come when the kids are gone and the house is fully paid off. • Basic Life Insurance products can be used to solve many problems that arise upon death or the transfer of assets.

13. Irrevocable Life Insurance Trust (ILIT) • Trust which is set up by individual/couple for the purchase and distribution of Life Insurance proceeds • Trust must be irrevocable to be eligible for certain tax exemptions (vary by jurisdiction…get individual tax advice) • Settler cannot be beneficiary • Once the life insurance policy is placed in the trust, the insured person no longer owns the policy, which will be managed by the trustee on behalf of the policy beneficiaries when the insured person dies. • Can settle Trust in home or other jurisdiction

14. Policy Beneficiary Trust vs. Named Beneficiary • Life Insurance Trust • Not subject to probate • Allows you to leave instruction as to how payout is used • Allows great flexibility in the use of proceeds • Named Beneficiary • Not subject to probate • Provides flexibility • Need to consider beneficiary’s tax position

15. Potential Uses: • Providing heirs with liquidity • Immediate source of cash to settle bills and pay ongoing expenses • Replacing monies lost to taxes e.g. Inheritance taxes

16. Potential Uses: • Providing a solution to the problems arising from multiple marriages • Avoid a ‘battle of the tribes’ • Accommodates beneficiaries with differing time horizons and/or priorities • Providing for ‘extended’ families • Commonplace in certain cultures • Separates and preserves the assets of the ‘traditional’ family • Preserves anonymity, if necessary

17. Potential Uses: • Providing protection against ‘human capital’ failure • What is ‘human capital’ failure? • Premature death • Disability • Providing Creditor Protection • Providing protection against capital market volatility • Provide protection from having to liquidate in ‘adverse’ markets

18. Potential Uses: • Replacing the value of an asset e.g. a home/business • Buy/sell agreements • Home/Business – leave to one heir…give other heirs the value of their rightful share • Funding for redevelopment of former estate • Building a Legacy/Funding a Bequest • Alumni Gift…buildings, scholarships • Donations – Churches, Hospitals, orphanages etc. • Favorite Charity

19. Potential Uses: • Forced Heirship Laws • Prevalent among civil law jurisdictions and Islamic countries • Hedge against expropriation/nationalization of assets • Hard assets outside of home jurisdiction

20. Potential Uses: • College Trust • Ensures that children/grand children etc. can have a fully funded education • Financial Security for surviving spouse • In many cases, a couple’s retirement plan is heavily based on the husband’s pension benefit. But… • Survivor benefit is often stopped or significantly reduced upon death • Similarly, healthcare benefits are also reduced

21. Thank You