Speaker s notes for Make the Connection IAT strategy presentation

Transcription

1 Slide 2: The need for money and ongoing cash flow doesn t decrease with wealth; it increases with multiple properties to maintain, luxury vehicles, high-end travel and more. The higher an individual s pre-retirement income, the greater the percentage of income replacement they ll need to maintain their lifestyle. Slide 3: As you know, Make the Connection is a program specially designed for successful Investment Advisors like you with clients who can benefit from incorporating insurance solutions to protect and maximize their wealth. We ve included proven sales strategies, marketing tools and guidance to help you connect your clients with solutions that protect their wealth and help them plan a tax-efficient legacy or income stream. Make the Connection has one simple objective: Encourage advisors like you to start conversations with your clients about wealth protection solutions. It s with that in mind that we will discuss a popular sales strategy today Individual asset transfer Slide 6: Tax challenges while living: Some of the tax challenges faced by high net worth clients while they are living can significantly reduce the overall value of their estate. Interest earned on nonregistered fixed income assets may be subject to annual taxes which reduce the overall net return and slow the growth of a client s assets over time. Tax challenges at death: At death, assets are deemed to be disposed of for their fair market value and a capital gain may be triggered. In addition, probate, legal and administrative costs may also apply. The result is a reduced transfer of assets to beneficiaries. Slide 7: Risk/Return challenges: Portfolio risk is a function of the risk of each individual asset class and their correlation. Being too heavily weighted in one asset class even a conservative one may end up increasing overall portfolio risk. Slide 8: Liquidity challenges: Many high net worth investors may be reluctant to transfer assets if they perceive access to the assets would be limited and they appreciate the comfort that comes from knowing they can access their investments at any time.

2 Slide 9: What is the Individual Asset Transfer strategy? It is a financial strategy that demonstrates the benefits of transferring assets from a taxable fixed income investment to a tax-exempt participating whole life insurance policy. An exempt life insurance policy, such as Sun Par Protector or Sun Par Accumulator offers advantages that can help reduce or eliminate some of the challenges that may occur during the life of, and after the death of, the insured person. Because a life insurance policy s cash value grows tax-preferred some of the risks of the clients assets deteriorating, due to annual interest tax, are relieved. The death benefit is also paid taxfree to the beneficiaries upon death of the insured, further protecting the estate value available. The IAT compares the life insurance cash value and death benefit to asset values in the client s fixed income portfolio by demonstrating the benefits of transferring assets from the taxable fixed income investment to the tax-exempt participating whole life insurance policy. Slide 10: How does the IAT work? Individual or couple purchases a participating whole life insurance policy Policy premiums are paid by transferring assets from their taxable non-registered fixed-income assets The cash value and death benefit accumulate on a tax-preferred basis within the whole life policy. This allows the individual to reduce their taxable income, potentially resulting in greater asset growth. Slide 11: If clients are concerned with the liquidity within a participating whole life insurance policy, they will appreciate the options available to them to access their investment: Withdraw cash from the policy Take out a policy loan against the value within the policy Collaterally assign the policy to a lending institution in exchange for a series of loans against the cash value within the policy. Upon death of the insured person, the life insurance death benefit proceeds are paid directly to the named beneficiaries on a tax-free basis. Any death benefit available to the beneficiaries would be net of outstanding policy or collateral loans. Slide 13: Participating whole life insurance is an attractive alternative asset class when compared against non-registered fixed income assets. The benefits to the client s estate are greatly enhanced and liquidity may be comparable to traditional non-registered fixed income assets

3 Tax-preferred cash accumulation there is no tax payable on the growth of the policy s cash value as long as it remains within the policy. Diversification opportunities participating policies have access to the participating account through the allotment of dividends. The account consists of a diversified mix of bonds, real estate, equities and mortgages. Liquidity If the policy owner requires access to the accumulated funds within their policy, they have the option of: taking a policy loan withdrawing cash value collaterally assigning the policy in exchange for a loan from a third part financial institution Stable growth The combination of a long-term investment strategy, a large well established par account and a prudent management philosophy contributes to strong, stable returns which investors can feel confident having their assets invested in. Tax-free death benefit At death, the estate or beneficiary receives the death benefit tax-free. By avoiding settlement costs, a larger amount can be passed directly to beneficiaries compared to using taxable benefits. Guarantees The cash value and death benefit within the policy are guaranteed provided the premiums are paid. The cash value is guaranteed to increase over the life of the policy provided no withdrawals are taken. Potential creditor protection For personally owned policies, the accumulated cash value of the policy may be protected from the claims of the policy owner s creditors during the policy owner s life and after their death. Protection of privacy By naming a beneficiary, the life insurance proceeds do not pass through the client s estate but go directly to the person or organization named. This helps clients keep their final wishes and the distribution of their assets private. Slide 14: The IAT strategy is an excellent way to demonstrate how participating life insurance can help individuals increase the value of their estate while maintaining liquidity. The tax rules surrounding this type of strategy can be complicated and advisors and clients should consider a number of factors prior to implementing the strategy: Transferring funds to the life insurance policy funds transferred from individually owned investments such as stocks, mutual funds or fixed income investments to a life insurance policy may trigger capital gains, which could result in taxes owing. If transferring guaranteed investments any applicable market value adjustments must be taken into consideration.

4 Policy performance When using participating whole life to compare the growth within an asset class, it is important to illustrate at alternate dividend scales to help clients understand the impact of a reduction in dividend scale on the cash values and death benefit of their life insurance plan Life insurance coverage type for couples, illustrating a joint-last-to-die policy may help to improve the effectiveness of the IAT strategy by reducing the premium commitment compared to a single life contract. Slice 15: Step 1 Illustrate Sun Par Accumulator or Sun Par Protector Include all excess payments where applicable (for example, Plus premium benefit) You must select either Paid up Additional insurance or Enhanced insurance as the dividend option Ensure premiums are made for the desired duration Step 2 Select Concept icon from the left hand margin and choose Individual Asset Transfer Would you like to export data only? Select NO From the excel toolbar, select Import Sun Life Name the Strategy Slide 16: Step 3 Complete the data entry tabs Representative tab contains advisor details including relevant contact information Investment Assumptions tab allows you to input the client s non-registered fixed income investment balance, the expected rate of return on the investment balance and the percentage of the participating whole life insurance cash surrender value that would be available as a collateral loan. The strategy always assumes that the premium will be paid from the clients non-registered fixed income investments Tax Assumptions tab allows you to enter the insured s marginal tax rate and should correspond with the marginal tax rate field entered on Eos. Slide 17: The client report is designed to give clients a professional high level description of how the strategy works and, more importantly, a summary of the opportunity that exists for transferring taxable non-registered fixed-income assets to participating life insurance.

5 There are 5 sections of the report: Cover page and Contents provides basic information about the advisor, client and details about the presentation Summary provides details about how clients will benefit from using the IAT strategy, the challenges they face, how the strategy works and a visual comparison of investment values and values at death for the IAT strategy and the Alternate Investment (pictured above) Summary Ledger tab provides a year by year comparison of the portfolio balance for the Alternate Investment to a participating whole life insurance policy. The following columns are displayed: annual transfer to insurance, remaining portfolio, insurance collateral cash value, total asset value, policy death benefit, net balance on death Detailed Analysis tab An additional ledger including annual interest and taxes generated from the Alternate Investment as well as total par policy cash value. Slide 19: If Richard requires access to the values in his policy in the future, he may be able to collaterally assign the policy to a lending institution in exchange for a series of tax-free loans. Lenders typically lend an amount up to 90% of the cash value of a participating life insurance policy. The IAT strategy Total Asset Value represents the amount of accessible cash available through Richard s fixed income portfolio plus any amounts resulting from the collateral assignment of the Sun Par Accumulator policy. Slide 24: Take advantage of the Make the Connection program resources for each of the sales strategies: Strategy worksheet Determine the right clients to talk to. The strategy work sheet provides step-by-step instructions to introduce a sales strategy to the right target clients, including a space to note which clients fit the profile. Client Send your clients an with a link to the whiteboard video to start the conversation. Concept overview Book an appointment for your client to meet with your Insurance Specialist. You can use the Concept overview to show clients how the strategy could work for them. Eos illustrations Your Insurance Specialist will use the Eos illustrations to make a proposal specific for your client.