Indexed Universal Life vs. Pretend Profit Sharing Plan

Size: px

Start display at page:

Download "Indexed Universal Life vs. Pretend Profit Sharing Plan"

Peregrine Mills
5 years ago
Views:

1 Indexed Universal Life vs. Pretend For: Robert McNamara Presented By: [Licensed user's name appears here]

Indexed Universal Life vs. Pretend Preface A decision to acquire additional life insurance can represent one of several significant phases in your overall financial planning.

2 Indexed Universal Life vs. Pretend Preface A decision to acquire additional life insurance can represent one of several significant phases in your overall financial planning. An important part of this decision involves the comparison of the life insurance policy to alternative investment possibilities. To help you make an informed decision about acquiring the policy, the accompanying presentation shows financial data regarding life insurance compared to a Pretend. The study offers information from which you and your advisers can draw informed conclusions about the suitability of either plan. Following are major features of the life insurance policy for you to consider as part of your overall assessment: 1. Accumulating cash values; 2. Income tax deferred growth of cash values; 3. Competitive current interest rate; 4. Tax free access to cash values via policy loans; 5. Income tax free death benefits; 6. Probate free death benefits; 7. Privacy of all transactions. Favorable income tax consequences combine with significant policy values and benefits to produce a life insurance solution that has a considerable amount of financial leverage. Cumulative Payments Cumulative Flow $1.M Cumulative Payments $1.M Indexed UL 7.5M 5.M 2.5M 7.5M 5.M 2.5M $7,465,158 $3,271,346 $75, Yrs Yrs Indexed UL $1.M Values $1.M Value Death Benefit 7.5M 7.5M 5.M 5.M 2.5M $ Yrs M $1,369,249 $1,199,41 Yrs This graphic assumes the non-guaranteed values shown continue in all years. This is not likely, and actual results may be more or less favorable. Page 1 of 7

3 Indexed Universal Life vs. Pretend Taxation of Flow With tax deductible retirement plans, withdrawals (partial surrenders) are taxable. Due to this, cash flow illustrated from the tax deductible retirement plan in this presentation is the after tax result of withdrawals of a higher amount. With cash value life insurance policies, withdrawals (also known as partial surrenders) are income-tax free up to cost basis and taxable thereafter. Policy loans are income-tax free so long as the policy stays in force until death. The source of the cash flow from the life insurance policy in this presentation is policy loans. Note: Policy loans reduce policy cash values and death benefits, and the lapse of a loaned policy could result in severe tax ramifications to the policy owner. Be sure to consult a professional tax adviser if you have any questions about this issue. Flow Analysis In Year 21 Below is an analysis of tax calculations on cash flow in the first year that cash flow from the Pretend and Indexed Universal Life is illustrated. Pretend 255, total 4.% tax which nets 153, Indexed Universal Life There are no tax calculations required for the life insurance policy since policy loans are not taxable On the life insurance policy, withdrawals up to cost basis (not in violation of IRC Section 772) are income tax free. Page 2 of 7

4 Indexed Universal Life vs. Pretend Comparison Yield 7.5% Income Tax Rate 4.% Indexed UL Interest Rate 7.5% Initial Payment 15, Initial Death Benefit 3,5, Pretend Indexed Universal Life Yr Male Age (1) Tax Deductible Deposits to the (2) Equivalent of Deposit* (3) Withdrawal from the ** (4) Value of (5) Value of if Distributed (6) Death Benefit of (7) Policy Premium (8) Policy Loan Proceeds (9) Value*** Increase (1) Value*** (11) Death Benefit , 15, 264, ,36 158,831 15, 31,565 31,565 3,5, , 15, 545,23 272, ,14 15, 153, ,699 3,5, , 15, 841,83 42,915 55,98 15, 163, ,432 3,5, , 15, 1,156, ,56 693,667 15, 175, ,68 3,5, , 15, 1,488, , ,337 15, 187,65 711,285 3,5, 6 5 1,576, , ,932 47,91 759,186 3,5, ,669, ,687 1,1,624 5,831 81,17 3,5, ,767, ,829 1,6,595 54,64 864,81 3,5, ,871, ,865 1,123,37 57,6 921,681 3,5, ,981,927 99,964 1,189,156 61, ,17 3,5, ,98,613 1,49,37 1,259,168 78,241 1,61,411 3,5, ,222,169 1,111,85 1,333,31 72,668 1,134,79 3,5, ,353, 1,176,5 1,411,8 77,525 1,211,64 3,5, ,491,533 1,245,767 1,494,92 82,641 1,294,245 3,5, ,638,222 1,319,111 1,582,933 88,133 1,382,378 3,5, ,793,548 1,676,129 1,676,129 94,13 1,476,58 3,5, ,958,18 1,774,811 1,774,811 1,66 1,577,168 3,5, ,132,171 1,879,33 1,879,33 17,733 1,684,91 3,5, ,316,578 1,989,947 1,989, ,42 1,8,33 3,5, ,511,841 2,17,15 2,17,15 123,749 1,924,52 3,5, , 3,448,587 2,69,152 2,69, , -58,341 1,865,711 3,339, ,85 3,371,286 2,22,772 2,22, ,85-59,169 1,86,542 3,164, ,795 3,278,942 1,967,365 1,967, ,795-59,558 1,746,984 2,974, ,919 3,17,354 1,92,212 1,92,212 17,919-59,45 1,687,579 2,768, ,227 3,44,24 1,826,544 1,826, ,227-58,525 1,629,54 2,546, ,723 2,899,237 1,739,542 1,739, ,723-56,768 1,572,286 2,35, ,415 2,733,887 1,64,332 1,64,332 19,415-54,69 1,518,217 2,45, ,37 2,546,639 1,527,983 1,527, ,37-49,921 1,468,296 1,82, ,46 2,335,838 1,41,53 1,41,53 24,46-43,921 1,424,375 1,735, ,718 2,99,723 1,259,834 1,259, ,718-39,61 1,385,314 1,647,434 1,25, 75, 1,812,36 75, 1,812,36 *Equal to Column (7) ** withdrawal has been grossed up to account for the income tax required to produce the after tax number shown in Column (3). ***This illustration assumes the nonguaranteed values shown continue in all years. This is not likely, and actual results may be more or less favorable. This illustration is not valid unless accompanied by a basic illustration from the issuing life insurance company. Note: Pretend values do not reflect market rate adjustments, if any. Pretend is assessed: Tax on withdrawals. Entries in Column (3) are after tax. 3 Year Summary Indexed UL Payments 75, 75, Flow 1,812,36 1,812,36 Living Values 1,259,834 1,385,314 Death Benefit 1,259,834 1,647,434 Page 3 of 7

5 Indexed Universal Life vs. Pretend Comparison Yield 7.5% Income Tax Rate 4.% Indexed UL Interest Rate 7.5% Initial Payment 15, Initial Death Benefit 3,5, Pretend Indexed Universal Life Yr Male Age (1) Tax Deductible Deposits to the (2) Equivalent of Deposit* (3) Withdrawal from the ** (4) Value of (5) Value of if Distributed (6) Death Benefit of (7) Policy Premium (8) Policy Loan Proceeds (9) Value*** Increase (1) Value*** (11) Death Benefit ,249 1,836,415 1,11,849 1,11, ,249-33,429 1,351,885 1,554, ,7 1,543, , , ,7-28,257 1,323,628 1,543, ,997 1,22,91 732,55 732,55 234,997-22,265 1,31,363 1,54, , , ,69 517,69 243,226-15,397 1,285,966 1,545, ,73 469, , , ,73-7,65 1,278,361 1,56, ,434 37,284 22,37 22,37 26,434 1,155 1,279,516 1,586, ,37 269,427 11,65 1,29,581 1,624, ,689 22,84 1,312,665 1,675, ,23 34,243 1,346,98 1,741, ,56 47,537 1,394,445 1,823, ,178-67,854 1,326,591 1,786, ,178-62,77 1,264,514 1,757, ,178-56,382 1,28,132 1,735, ,178-5,979 1,157,153 1,721, ,178-46,134 1,111,19 1,714, ,178-42,267 1,68,752 1,714, ,178-2,991 1,47,761 1,599, ,178 7,694 1,55,455 1,498, ,178 46,232 1,11,687 1,418, ,178 97,714 1,199,41 1,369,249 1,25, 75, 3,271,346 75, 7,465,158 *Equal to Column (7) ** withdrawal has been grossed up to account for the income tax required to produce the after tax number shown in Column (3). ***This illustration assumes the nonguaranteed values shown continue in all years. This is not likely, and actual results may be more or less favorable. This illustration is not valid unless accompanied by a basic illustration from the issuing life insurance company. Note: Pretend values do not reflect market rate adjustments, if any. Pretend is assessed: Tax on withdrawals. Entries in Column (3) are after tax. 5 Year Summary Indexed UL Payments 75, 75, Flow 3,271,346 7,465,158 Living Values 1,199,41 Death Benefit 1,369,249 Page 4 of 7

6 Indexed Universal Life vs. Pretend A Look at Year 5 Pretend Indexed Universal Life 3,271,346 Cumulative 75, Payments 75, 7,465,158 Cumulative Flow 1,199,41 Value Value 1,369,249 Death Benefit Page 5 of 7

7 Indexed Universal Life vs. Pretend Flow Comparison $7,6, $7,465,158 $5,7, $3,8, $3,271,346 $1,9, $ Years (21-5) At Year 5 Cumulative Flow - Pretend $3,271,346 Cumulative Policy Flow - Indexed UL $7,465,158 Page 6 of 7

8 Indexed Universal Life vs. Pretend 5 Year Analysis $3,6, $2,7, $1,8, $1,369,249 $1,199,41 $9, $75, $ $ Years At Year 5 Cumulative Payments $75, Pretend Values $ Value of Indexed UL $1,199,41 Death Benefit of Indexed UL $1,369,249 Page 7 of 7

Profit Sharing Plan vs. Indexed Universal Life

Profit Sharing Plan vs. Indexed Universal Life vs. Indexed Universal Life For: Jennifer Hunt Presented By: [Licensed user's name appears here] vs. Indexed Universal Life Preface A decision to acquire additional life insurance can represent one of several