life llc pre purchase review sample presentation website

Life Insurance Life Insurance -- PrePre--Purchase ReviewPurchase ReviewFor Mr. SampleFor Mr. Sample

SAMPLEAll Names Removed And Information Modified To Maintain Confidentiality

Kenneth W. Godfrey, CLUKenneth W. Godfrey, CLU ®®, , ChFCChFC®®, CFP, CFP®®

President & CEOPresident & [email protected]@LIFEInsReviews.com

Life Insurance Financial Evaluations, LLCLife Insurance Financial Evaluations, LLC TMTM

www.LIFEInsReviews.comwww.LIFEInsReviews.com5113 35113 3rdrd Street NorthStreet NorthArlington, VAArlington, VA 2220322203(c) 704(c) 704--315315--87028702

04/13/201104/13/2011

Confidential – For Client or Advisor Use Only © 2011 Life Insurance Financial Evaluations, LLCTM

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Preface & DisclosuresPreface & Disclosures

The material in this report is designed to provide accurate and authoritative information regarding the subject covered. However, it is provided with the understanding that Life Insurance Financial Evaluations, LLCTM is not engaged in rendering legal, tax, or accounting services. This communication is not a covered opinion as defined by Circular 230 and is limited to the federal tax issues addressed herein. Additional issues may exist that affect the federal tax treatment of the transaction. Thecommunication is not intended or written to be used, and cannot be used, or relied on, by the taxpayer, to avoid federal tax penalties. You should obtain the opinions of your attorneys and accountants on recommendations contained herein.

This proposal is conceptual in nature with hypothetical insurance illustrations that may include variable life insurance. Details and information regarding investment objectives and a description of the types of securities in which each Series may invest can be found in the appropriate Prospectus for the product ultimately selected and should be reviewed carefully. Variable life insurance involves an investment risk, including the possible loss of value.

Life Insurance Financial Evaluations, LLCTM is not a broker or dealer or registered investment advisor and is not in the business of selling any life insurance or securities products. Life Insurance Financial Evaluations, LLCTM is not liable for inaccurate information and any corresponding policy recommendations. Life Insurance Financial Evaluations, LLCTM recommends that the policyowner(s) discuss the analysis with a licensed life insurance agent before making any policy decisions. Any insurance purchase or policy management decisions and potential policy modifications will be made at the sole discretion of the policyowner(s).

“Life Insurance Financial Evaluations” and the LIFE logo are trademarks of Life Insurance Financial Evaluations, LLC.

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Table of ContentsTable of Contents

� Introduction – Page 4

� Life Insurance Education – Page 6

� Insured Underwriting and Life Expectancy Evaluation s – Page 13

� Policy Under Consideration – Page 19� Policy Details� Performance Analysis� Carrier Information

� Coverage Alternatives – Page 25� Term Insurance Alternative� Guaranteed Universal Life Insurance Alternative� Cash Accumulation Insurance Alternative� Coverage Alternative Summary� Sample Pricing

� Conclusions and Suitability Determination – 1

� Appendix – Page 33� Additional Educational Information� Policy Reviewer Information

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SAMPLEIntroductionIntroduction

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IntroductionIntroduction

�A life insurance purchase is a long term financial commitment and it is important to purchase the right product type to meet the insuran ce needs. At Life Insurance Financial Evaluations, LLC TM, we believe a second opinion is important when considering a major life insurance purchase.

�The purpose of this presentation is to provide a th orough and constructive evaluation of the life insurance policy from ABC Insurance Compan y under consideration for purchase.

� The report identifies key areas of consideration in the insurance decision making process and should provide the purchaser the knowledge to have a more informed interaction with the life insurance agent.

� The report provides a variety of educational material and pertinent commentary regarding the proposed life insurance carrier, product, pricing, policy design, and recommended future policy management.

� The report provides a detailed financial analysis of the proposed insurance coverage and representative coverage alternatives to ensure the desired purchase objectives are met.

�Prior to finalizing the insurance purchase, our goa l is for you to fully understand what you are buying, to be committed to the long term na ture of the decision, and to understand the various tradeoffs and alternatives t o feel assured you are making the best decision for your individual and family needs.

� In conclusion, we will make a suitability determina tion and categorize the proposed policy in one of three categories: Suitable , Suitable w/ Reservations , and Not Suitable .


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SAMPLELife Insurance EducationLife Insurance Education

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Life Insurance Life Insurance –– Carrier and Product ConsiderationsCarrier and Product Considerations

�A variety of factors come into play when considerin g the purchase of life insurance coverage.

� Insurance Carrier Considerations:� Insurance carrier financial strength� Underwriting decision� Carrier policy service capabilities� Availability of policy types

�Product Considerations:� Desired policy type� Amount of coverage� Duration of need� Policy pricing – Estimated premium amount and duration� Estimated policy performance – (note: policy illustrations are hypothetical and based on current interest

rate environment or assumption of future market performance. Actual results may be more or less favorable.)

� Product features such as guarantee amounts and riders� Age determination (age nearest or age last) and backdating policy to save age� Modified Endowment Contract (MEC) status


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Life Insurance Life Insurance –– Overall Plan CostsOverall Plan Costs

�The required premiums associated with a life insura nce purchase are usually only one component of an overall financial plan.

� Life insurance currently enjoys favorable tax and accounting treatment. Nevertheless, potential income, estate, and gift tax liabilities should be considered when evaluating a life insurance purchase.

� Factors such as planned policy ownership may impact the overall cost. For example, gift tax considerations may significantly impact the overall cost of purchasing life insurance owned by an irrevocable life insurance trust (ILIT).

� When taxes are a potential issue, there may be plan design considerations (e.g., split dollar life insurance) that can reduce the overall financial costs of the transaction. These alternatives can be sophisticated and should be discussed with your insurance agent and tax advisor.


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Life Insurance Life Insurance –– Replacements and 1035 ExchangesReplacements and 1035 Exchanges

� If the new purchase will be implemented via a polic y replacement or tax-free 1035 exchange, it is important to understand the rules a nd regulations of life insurance replacements.

� A policy replacement or tax-free 1035 exchange should only be considered if the transaction is in the best interest of the customer and current objectives cannot be met by continuing or modifying existing coverage and/or buying additional insurance. Over time, a customer’s insurance needs and objectives may change for a variety of reasons.

� It is very important that the insured(s) and owner names are identical on the old and new policy if a Section 1035 exchange is recommended.

� Existing policy loans can complicate a 1035 exchange. Extreme care is recommended in these situations to avoid unwanted taxation of cash surrender values.


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Life Insurance Life Insurance –– Ownership StructureOwnership Structure

� If a life insurance purchase is for estate planning purposes and the desire is for the death proceeds to be received outside of the estate , certain steps should be taken to avoid personal incidents of ownership in the policy .

� An irrevocable trust (ILIT) is established for the benefit of heirs. The trust is a grantor trust for income tax purposes, meaning any trust income is attributed and includable on the grantor’s personal income tax return.

� The ILIT applies for life insurance coverage on the life of the grantor(s). Since the ILIT is the initial owner of the policy, a “three year look back rule” on transfer of assets is avoided for estate tax purposes.

� Grantors contribute assets (cash or other assets) to the trust to finance the life insurance premiums.

� Cash gifts to the trust may be subject to gift tax or may avoid a gift tax by using annual exclusions or lifetime exemptions. Alternatively, the cash contributed may be structured as a loan or a sale of existing assets. Another source of capital may be a transfer of existing cash value or convertible term life insurance policies to the trust which may be replaced for new coverage.

� To qualify for the annual exclusion, cash gifts should be “present interest“ gifts and should be held 30 days or longer. Each time a cash gift is made, the trustee notifies the trust beneficiaries of their withdrawal power via a written Crummey notice letter.


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An Important Note For TrusteesAn Important Note For Trustees

�Uniform Prudent Investor Act (UPIA):

� If a life insurance policy is owned by an irrevocable life insurance trust (ILIT), the trustee has an important fiduciary responsibility to manage the policy for the benefit of the trust beneficiaries. Under the Uniform Prudent Investor Act, ILIT trustees must establish and follow a prudent process for determining the suitability of trust owned life insurance (TOLI) policies and managing the life insurance in response to changing market conditions. The Uniform Prudent Investor Act was adopted in 1992 and has been approved by most states.

� Compliance with the Uniform Prudent Investor Act is determined by the trustee’s conduct in establishing and following a prudent process. The process should focus on monitoring the life insurance, investigating the suitability, and managing the life insurance to minimize and justify the expenses, while simultaneously maximizing the rates of return relative to risk.

� The prudent investor standard applies to fiduciaries ranging from the most sophisticated professional investment management firms and corporate fiduciaries (e.g., bank trust departments) to family members with minimal experience.

� In 2009, the Cochran vs. KeyBank case highlighted the risks that trustees face when dealing with the prudent management of TOLI. In this case, the trustee was sued by the beneficiaries of an ILIT for violation of Indiana’s Uniform Prudent Investor Act and breach of trust.

� Although KeyBank was the trustee and ultimately won the lawsuit, the case brings attention to the appropriate protocols that should be followed when managing TOLI. The March 2, 2009 ruling by the Court of Appeals of Indiana in the Cochran vs. KeyBank case highlights the importance of a trustee relying on guidance from “an outside, independent entity with no policy to sell or any other financial stake in the outcome.”


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Ongoing Policy ManagementOngoing Policy Management

�Due to a variety of factors such as interest credit ing rate changes and varying policy charges, a periodic policy review is essential to e nsure the policy is performing as expected and meeting your financial planning needs.

�An underfunded life insurance policy is a policy th at is not performing as well as originally intended. There are significant risks th at an underfunded policy will lapse or expire worthless before the policy reaches maturity (usually age 95 or 100) or before death. This may result in a loss of coverage, cash values, and premiums paid.

�According to a 2006 Time magazine article, 88% of universal life policies ne ver pay a death benefit. There are a variety of reasons why in surance policies lapse before maturity. Some reasons include:

� Interest or dividend crediting rates lower than originally projected� Premiums paid less than originally planned� Premiums paid late� Premiums paid via policy loans for whole life policies� Policy surrenders, loans, or withdrawals of cash values� Insurance company charges higher than originally projected

�An underfunded policy should be addressed and corre cted immediately. As time goes on, the problem becomes harder and more expensive t o correct.


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Insured Underwriting and Life Insured Underwriting and Life Expectancy EvaluationsExpectancy Evaluations


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Life Insurance Life Insurance -- UnderwritingUnderwriting

�Perhaps the most misunderstood area of the insuranc e industry is the underwriting process. Insurance carriers categorize individuals who desire insurance protection into different classifications based on health and other factors.

� No single factor impacts the acquisition cost of insurance coverage more than the underwriting classification of the insured(s).

�New insurance policies are issued with numerous und erwriting classifications. Individuals who receive preferred underwriting clas sifications are expected to live longer than the average population.

�For existing policies, an insurance carrier may con sider upgrading the underwriting classification if the insured is willing to undergo new underwriting requirements.

�Some of the issues an underwriter may consider incl ude:

�Age �Family History �Personal Habits

�Medical History �Vocation �Travel

�Financial Status �Avocations


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Insured Life Expectancy (LE) EvaluationsInsured Life Expectancy (LE) Evaluations

�Although it is impossible to know the life expectan cy of any one person, it is possible to estimate life expectancy or probability of survival to a given age based on a large number of individuals through actuarial tables.

�Life expectancies may impact the duration of the li fe insurance coverage needed. Many life insurance policies today can provide coverage to age 120 or later, even though the probability of living this long is very small. A s horter duration of coverage may decrease the overall cost of the insurance.

�The following pages detail the life expectancies of the insured(s) based on various insurance carrier underwriting classifications:

�The underwriting classification for the policy unde r consideration:

� Mr. Sample - Male Preferred Non-Smoker


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Underwriting Classifications Underwriting Classifications –– Average LEAverage LE

Life Expectancies based on the 2001 CSO Mortality Table.

�Although an insured may be classified at a particul ar underwriting class, their actual health may be different than the insurance policy r eflects.

� The insured’s health may change after the policy is purchased.

� The agent may have been able to secure a better underwriting classification at policy issue due to table shaving programs or agent’s status and relationship with the insurance company.

�The charts show that one’s overall health and under writing classification can have a significant impact on estimated life expectancy.

Class Avg. YearsSuper Preferred 27.7

Preferred 26.7 Standard 25.3

Table 1 23.4 Table 2 21.8 Table 3 20.6 Table 4 19.5

LE - Underwriting Classes Age 55 Male Non-Smoker


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Underwriting Classifications Underwriting Classifications –– Confidence LevelConfidence Level

�One of the biggest risks of owning life insurance i s outliving the policy. To avoid underpaying or overpaying, the policy can be active ly managed to target a specific duration with a high probability of success.

� A life insurance policy designed or managed to have a duration estimated to meet the insured’s average or median life expectancy is very risky. An insured’s median life expectancy means that half (50%) of a population with similar characteristics will pass away by the designated age or time period.

� Using an estimated life expectancy calculation with a higher probability of success is more appropriate. For instance, the policy can be designed or managed for a higher confidence level (e.g. 80% or 95%) of success.

�The charts show the estimated life expectancy of th e insured based on various underwriting classifications.


Class 50% 80% 95%Super Preferred 85 91 97

Preferred 83 91 96 Standard 82 89 95

Table 1 80 87 93 Table 2 78 86 91 Table 3 77 84 89 Table 4 76 83 88

Age 55 Male Non-SmokerConfidence Level - Age of Mortality


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Insured Life Expectancy Evaluations Insured Life Expectancy Evaluations –– Mr. SampleMr. Sample

Your Single Life Expectancy is: Your Single Life Expectancy is: 26.7 years26.7 years


His Age Prob.70 86.0%75 76.1%80 61.6%

85 41.8%90 20.8%95 6.4%100 1.0%

Age 55 Male Non-Smoker

Probability of Survival

0%

20%

40%

60%

80%

100%

70 74 78 82 86 90 94 98 102

106

110

Probability of Death in a Given Year

0%

2%

4%

6%

8%

10%

70 73 76 79 82 85 88 91 94 97 100

103

106

109

Age

This chart shows the probability of survival at each age. The chart indicates that at

least 9 out of 10 people who are Male Preferred Nonsmoker age 55 will die before

age 94.

The chart shows the probability of death in a given year and illustrates that there is a very

high degree of uncertainty regarding the actual year of death. The probability of

death is no greater than 4.3% in any given year. At least two thirds (2/3) of Male

Preferred Nonsmoker age 55 insureds will die between the ages of 71 and 92.


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SAMPLEPolicy Under ConsiderationPolicy Under Consideration

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Policy Under Consideration Policy Under Consideration –– Policy DetailsPolicy Details

� Insureds:� Mr. Sample – 01/01/1956 – Current Age 55

� Insurance Carrier:� ABC Insurance Company

�Product Type:� Guaranteed Universal Life

�Policy Ownership:� The policy is to be owned by the Sample Family Irrevocable Trust dated 01/01/2003

�Policy Beneficiaries:� Primary – Sample Family Irrevocable Trust dated 01/01/2003� Contingent – None listed


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Policy Under Consideration Policy Under Consideration –– Policy DetailsPolicy Details

�Death Benefits:� Policy Face Amount - $1,000,000� Death Benefit Option – Level

�Policy Premiums:� Levels - $12,434 per year (premiums required for first five years)� Mode – Premiums to be payable annually� Duration – Premiums illustrated to be payable for all years

The life insurance policy information included in this report is a supplemental life insurance illustration. Please refer to the computer generated illustration for more information.


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Policy Under Consideration Policy Under Consideration -- Performance AnalysisPerformance Analysis

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ABC Insurance CompanyGuaranteed Universal LifePolicy Under Consideration

4.00% Crediting RatePolicy Year His Age LE* Annual Premium Account Value Surrender Charges Cash Surrender

ValueNon-Guaranteed Death Benefit

IRR on Non-Guar. Death Benefit

Guaranteed Death Benefit*

1 56 (12,434)$ 6,910$ 6,910$ -$ 1,000,000$ 7942.5% 1,000,000$ 2 57 (12,434) 14,018 14,018 - 1,000,000 748.2% 1,000,000 3 58 (12,434) 21,138 21,138 - 1,000,000 293.6% 1,000,000 4 59 (12,434) 28,343 20,799 7,544 1,000,000 167.7% 1,000,000 5 60 (12,434) 35,662 16,399 19,263 1,000,000 112.8% 1,000,000 6 61 (12,434) 43,031 15,600 27,431 1,000,000 82.9% 1,000,000 11 66 (12,434) 81,172 11,100 70,072 1,000,000 31.4% 1,000,000 16 71 (12,434) 134,200 5,599 128,601 1,000,000 17.3% 1,000,000 21 76 (12,434) 177,133 - 177,133 1,000,000 11.0% 1,000,000 26 81 (12,434) 183,962 - 183,962 1,000,000 7.6% 1,000,000 27 82 (12,434) 175,637 - 175,637 1,000,000 7.1% 1,000,000 28 83 50% (12,434) 162,331 - 162,331 1,000,000 6.6% 1,000,000 29 84 (12,434) 143,190 - 143,190 1,000,000 6.2% 1,000,000 30 85 (12,434) 116,810 - 116,810 1,000,000 5.8% 1,000,000 31 86 (12,434) 81,721 - 81,721 1,000,000 5.4% 1,000,000 32 87 (12,434) 35,637 - 35,637 1,000,000 5.1% 1,000,000 33 88 (12,434) - - - 1,000,000 4.8% 1,000,000 34 89 (12,434) - - - 1,000,000 4.5% 1,000,000 35 90 (12,434) - - - 1,000,000 4.2% 1,000,000 36 91 80% (12,434) - - - 1,000,000 4.0% 1,000,000 37 92 (12,434) - - - 1,000,000 3.8% 1,000,000 38 93 (12,434) - - - 1,000,000 3.5% 1,000,000 39 94 (12,434) - - - 1,000,000 3.3% 1,000,000 40 95 (12,434) - - - 1,000,000 3.1% 1,000,000 41 96 95% (12,434) - - - 1,000,000 3.0% 1,000,000 46 101 (12,434) - - - 1,000,000 2.2% 1,000,000 51 106 (12,434) - - - 1,000,000 1.7% 1,000,000 56 111 (12,434) - - - 1,000,000 1.2% 1,000,000 61 116 (12,434) - - - 1,000,000 0.9% 1,000,000 66 121 (12,434) - - - 1,000,000 0.6% 1,000,000

TOTAL (820,644)$

This illustration depicts elements of life insurance which are not guaranteed and is considered a supplemental illustration. Please refer to the NAIC Basic Illustration or the hypothetical compliant variable life insurance illustration and prospectus which include information about the guaranteed elements of the illustrated policy. Actual policy performance may differ from this illustration.

Totals for “Annual Premium” columns equal to total potential scheduled premiums paid over life of policy.* If premiums are paid as illustrated and on time and no withdrawals and/or loans are taken, the insurance carrier guarantees the death benefit will be in force for the life (lives) of the insured (insureds) or specified period.* LE = Life Expectancy based on the 2001 CSO Mortality Table. The percentages shown are the probability of survival at a given age. If the policy is inforce, the percentages can be used as a confidence level that the policy will outlive the insured(s).


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Policy Under Consideration Policy Under Consideration -- Performance AnalysisPerformance Analysis

�Performance Analysis and Policy Summary:

� Duration - The illustration shows that the policy is designed assuming the current crediting rate of 4.0% and the policy is projected to carry to policy age 121 on a non-guaranteed basis.

� Guaranteed Values – The death benefit is guaranteed to age 121 based on guaranteed interest rates and charges. If premiums are paid as illustrated and on time and no withdrawals and/or loans are taken, the insurance carrier guarantees the death benefit will be inforce for the specified period.

� Sensitivity of Interest Crediting Rates – Illustrations should be run at varying interest crediting rates to show how the policy is expected to perform under different market conditions.

� For GUL products, higher increased crediting rates will have some impact on cash value accumulation but little to no impact on death benefit coverage amounts.

� Surrender Charges – Surrender charges will be levied against the policy cash values if the policy is surrendered or 1035 exchanged in the first 20 policy years.

� Policies with surrender charges may provide a cheaper premium than alternatives without surrender charges. However, surrender charges may limit the available options if policy changes are desired in the future.

� Outstanding Loans – There are no policy loans illustrated. Policy loans create a negative drag on policy performance and should be avoided if possible.

� The policy is classified as a Non-MEC contract which provide favorable access to cash values.


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Policy Under Consideration Policy Under Consideration -- Carrier InformationCarrier Information

�An insurance carrier’s financial strength and claim s paying ability are very important when purchasing life insurance.

� For permanent life insurance policies, all cash surrender values allocated to the company’s general account are subject to the credit risk of the insurance carrier.

� Death benefit proceeds are also subject to the claims paying ability of the insurance carrier.

�Financial Strength Ratings:� The Comdex is not a rating itself, but a composite of all the ratings that a company has received. The

Comdex ranks the companies, on a scale of 1 to 100, in relation to other companies that have been rated by the services. According to the Comdex, the insurance company ranks in the 94th percentile of all insurance companies.

94Comdex (Percentile in Rated Companies)

AA- (4)Standard & Poor's (Financial Strength, 20 ratings)

A+ (2)A.M. Best Company (Best's Rating, 15 ratings)

AA- (4)

A1 (5)

Ratings

Moody's (Financial Strength, 21 ratings)

ABC Insurance Company

Fitch Ratings (Financial Strength, 24 ratings)

NOTE: A company needs to be rated by at least two rating services to receive a Comdex. The Comdex is based on the ratings issued by the following rating services: A.M. Best, Standard & Poor's, Moody's Investors Service and Fitch.


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SAMPLECoverage AlternativesCoverage Alternatives

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Term Insurance AlternativeTerm Insurance Alternative

� About Term life insurance:

� Term life insurance provides coverage for a fixed period of time. When the term period expires, the policy either ends or coverage converts to annual renewable term (ART) insurance with increasing premiums. ART rates can be cost prohibitive to continue the coverage.

� When purchasing Term insurance, it is desirable to purchase coverage for the maximum duration needed. Although premiums increase with the duration, obtaining the proper duration of coverage can avoid significant issues from lack of coverage later on.

� When the term period expires, obtaining new insurance coverage requires going through new underwriting and can become very expensive (especially if there has been a decline in health status).

� Some Term insurance policies offer conversion features to “permanent” products. There may be limits on how long the policy is available to be converted and it is important to monitor when the conversion privileges expire.

� Term insurance may not be available to older individuals and the maximum period is usually 30 years.

� Insurance carriers determine insurance age differently. Some use an age nearest calculation while others use an attained age calculation. Backdating a Term insurance policy may result in lower pricing.

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Guaranteed Universal Life (GUL) Insurance Alternati veGuaranteed Universal Life (GUL) Insurance Alternati ve

� About Guaranteed Universal Life insurance:

� Guaranteed Universal Life insurance products are similar to Term insurance products in that they provide guaranteed life insurance coverage for a specified duration. The policies usually have little to no cash surrender values.

� If premiums are paid as illustrated and on time and no withdrawals and/or loans are taken, the insurance carrier guarantees the death benefit will be in force for the life of the insured or specified period.

� Since Term insurance may not be available for older individuals or for the desired duration, Guaranteed Universal Life insurance products offer unique alternatives.

� Many GUL products offer coverage to age 120 or later. In addition, many GUL products allow you to target the desired duration (e.g., age 90 or age 100).

� Guaranteed Universal Life products are “permanent” products and offer increased flexibility. If the desired duration changes over time, premiums can be increased or decreased to lengthen or shorten the coverage duration without evidence of insurability. However, an increase in coverage amount involves new underwriting requirements.

� Survivorship or second-to-die policy options are available for Guaranteed Universal Life insurance products.

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Cash Accumulation Insurance Product AlternativeCash Accumulation Insurance Product Alternative

� About Cash Accumulation life insurance:

� Cash Accumulation life insurance products are “permanent” products and come in many flavors. Cash Accumulation life insurance products are often referred to as Whole Life, Variable Life, or Equity Index Life.

� With these products, it is important to understand the differences between guaranteed vs. non-guaranteed values and how interest credits will apply to account values. Account values can be allocated to the insurance carrier general account, insurance sub-accounts that operate similar to mutual funds, or equity index options that trade some upside growth potential for downside market protection.

� Many Cash Accumulation products offer some level of guaranteed life insurance coverage for a specified duration if premiums are paid as illustrated and on time and no withdrawals and/or loans are taken.

� Cash Accumulation products offer an increased risk/reward for planned premiums. If policy performance is better than expected, future premium requirements to maintain the policy may be minimized. Conversely, if policy performance is not as expected, higher premiums may be required to maintain the policy.

� Cash Accumulation products require a higher commitment level on behalf of the policyholder to actively manage the policy (e.g., account allocation for Variable Life insurance) and policy performance should be periodically reviewed.

� Survivorship or second-to-die policy options are available for Cash Accumulation life insurance products.

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Coverage Alternative SummaryCoverage Alternative Summary

� Summary

� For as long as the coverage is needed, a life insurance purchaser should commit to paying the scheduled premium amounts each and every year. Otherwise, the purchaser risks the policy lapsing and ultimately wasting their money.

�The insurance contemplated includes premium payments in all policy years and well past normal retirement ages. Shorter premium durations may be more appropriate for some people.

� Term insurance products offer the cheapest premiums but the coverage is for a limited duration. A 30 year Term insurance product provides coverage until age 85.

�Based on preferred nonsmoker underwriting, there is a 58% probability that Mr. Sample will be alive at age 85 and outlive the coverage.

� Guaranteed Universal Life insurance products are more flexible than Term Insurance and offer the ability to specify the desired duration and make adjustments over time.

�For Guaranteed Universal Life insurance products, it is important to determine the appropriate policy duration while considering life expectancy calculations and design the policy accordingly.

� Cash Accumulation insurance products may be more appropriate than term insurance or GUL depending on the purpose of the insurance, risk tolerance of purchaser, and policy management commitment level.

� Diversifying insurance carriers, product types, and product duration via policy stacking (i.e., the purchase of multiple policies) may provide a more balanced insurance portfolio and increase flexibility for future unforeseen cash flow limitations.

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Sample Pricing Sample Pricing –– Mr. SampleMr. Sample

�Below are representative Term life insurance produc ts and pricing.

�Below are representative Guaranteed Universal Life insurance products and pricing.

Premium pricing subject to change and insured must meet underwriting requirements. Requirements may differ for each carrier. Sample pricing is for illustrative purposes only and does not include all eligible carriers and products. Actual writing carrier may be a subsidiary of parent company. Please contact a licensed insurance agent for details.

Carrier Product Comdex Term Underwriting Class Annual Premium1 Banner Life OPTerm 30 93 30 Preferred Non-Tobacco 6,515.00$ 2 Transamerica Life Trendsetter Super 94 30 Preferred Nonsmoker 6,670.00$ 3 Genworth Life Colony Term UL 79 30 Preferred No Nicotine Use 6,967.00$ 4 American General AG Select-A-Term 84 30 Preferred Nontobacco 7,324.00$ 5 Pruco Life Ins Co (Prudential) Term Essential 30 89 30 Preferred Non-Tobacco 7,455.00$ 6 ING Reliastar ING TermSmart 30 79 30 Preferred Nonsmoker 7,498.00$ 7 Protective Life Protective Secure-T 87 30 Preferred 8,630.00$ 8 West Coast Life Secure T 87 30 Preferred Nontobacco 8,630.00$ 9 Aviva Life and Annuity 30 Year Term 86 30 Preferred Non Tobacco 8,775.00$

Average 86.4 7,607.11$

Sample Term Insurance Products

Carrier Product Comdex Age Underwriting Class Annual Premium1 American General ContinUL 84 100 Preferred Nontobacco 10,730.00$ 2 Genworth Life GenGuard UL 79 105 Preferred No Nicotine Use 11,560.00$ 3 Banner Life Life Choice UL 93 100 Preferred Non-Tobacco 11,598.00$ 4 MetLife Investors Guarantee Advantage UL 95 ? Preferred Plus Nonsmoker 11,700.00$ 5 Aviva Life and Annuity Advantage Builder 86 ? Preferred Non-Tobacco 11,710.00$ 6 Banner Life Life Choice UL 93 121 Preferred Non-Tobacco 11,736.00$ 7 American General ContinUL 84 121 Preferred Nontobacco 11,810.00$ 8 Lincoln National Life LifeGuaranteed UL 89 ? Preferred Non-Smoker 11,851.00$ 9 Protective Life Centennial G II UL 87 ? Preferred 11,900.00$

10 West Coast Life WCL LifeTime Platimum III 87 ? Preferred Nontobacco 11,900.00$ Average 87.7 11,649.50$

Sample Guaranteed Universal Life Products

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Conclusions and Suitability Conclusions and Suitability DeterminationDetermination


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Conclusions and Suitability DeterminationConclusions and Suitability Determination

�The purchase of the policy under consideration is d eemed Suitable based on the information provided and the purchaser is comfortab le with the tradeoffs identified in this presentation.

�The determination is based on the following criteri a:

� The annual premium amount of $12,434 for the policy under consideration is comparably priced to other available alternatives. An alternative policy design that targets a guaranteed death benefit to age 100 or 105 may provide cheaper premiums if the purchaser is comfortable with the higher inherent risk of the shorter policy duration.

� The life insurance carrier is highly rated with a Comdex rating of 94.

� The life insurance protection needs are primarily for extended death benefit coverage and not cash accumulation.

� Based on the scheduled premiums, the life insurance coverage is currently projected to be inforce to age 121 on a guaranteed and non-guaranteed basis which is well past the insured’s life expectancy.

� The purchaser commits to paying the scheduled premiums and periodically monitor the policy performance.

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AppendixAppendix


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Life Insurance Life Insurance –– Replacements and 1035 ExchangesReplacements and 1035 Exchanges

�Possible reasons for insurance replacements include , but are not limited to:

� Desire to change policy type (i.e. variable product to fixed product or vice versa)� Change in objective (i.e. cash accumulation to death benefit)

� Change in risk tolerance� Diversification

� Better third-party ratings for replacing company. Should involve a meaningful improvement in ratings� Better underwriting class on new policy

� More underwriting classes than before� Improvement in overall health

� Contract benefits not available with existing policy or current carrier� Available policy sub-accounts (should involve substantial differences)� Policy riders� Secondary guarantees� Extended maturity ages� Policy service and administration� Reducing premiums/death benefit/levelizing death benefits

� More competitive pricing� Better guaranteed and/or illustrated death benefits and/or cash values� Lower guaranteed premiums and/or illustrated cash outlay or shorter cash outlay period based on illustration of

non-guaranteed performance

� Loan treatment - Better loan interest rate� A change in agent relationship� Change in tax laws� Change in family structure, insurance needs or need to change ownership to a trust


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Modified Endowment ContractsModified Endowment Contracts

�Modified Endowment Contracts (MECs)

� All permanent life insurance policies are categorized as either Modified Endowment Contracts or Non-Modified Endowment Contracts.

� MECs are typically created when premiums are paid into a life insurance contract very quickly – resulting in a narrow gap between policy cash value and the death benefits.

� Because of this small gap, the government perceives the life insurance policy as an investment as opposed to a traditional life insurance contract purchase. Therefore, MECs have adverse tax consequences when compared to Non-MEC contracts. Policy distributions are taxed based upon LIFO (“Last In. First Out.”) accounting, which means gains are taxed first.

� Modified Endowment Contracts also have an additional 10% excise tax on any policy distributions. This excise tax is lifted if the policy owner is over 59 1/2.

� There are no adverse consequences associated with death benefits in MECs as compared to Non-MECs.

� In order to avoid a policy being classified as a Modified Endowment Contract, premiums usually need to be spread over four or more years.


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Policy Reviewed By Ken GodfreyPolicy Reviewed By Ken GodfreyPrior to starting Life Insurance Financial Evaluations, LLCTM in 2010, Ken Godfrey spent over thirteen years in the life insurance industry with a focus in the specialty areas of executive compensation/benefits and wealth transfer/estate planning. Throughout his career, Ken managed teams of financial analysts responsible for conducting comprehensive life insurance policy reviews and summarizing and presenting the results in an understandable fashion.

Ken’s previous work experience includes:� Managing Director/Technical Advisor for McNair & Company in McLean,

Virginia, � Dual roles of President & Chief Compliance Officer for Wachovia Insurance

Services Broker Dealer, Inc. and Vice President, Manager of Advanced Markets for Wachovia Insurance Services, Inc. in Charlotte, NC, and

� Director – Design & Analysis for The Todd Organization in Greensboro, NC.

Ken’s professional designations and certifications include the Chartered Life Underwriter® (CLU®) and Chartered Financial Consultant® (ChFC®) from The American College and the CERTIFIED FINANCIAL PLANNERTM certification from the CFP Board of Standards. He graduated from North Carolina State University in 1996 with a B.A. in Business Management and a Minor in Statistics.


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