Lincoln knows accumulation Client profiles for wealth accumulation planning with Lincoln life insurance

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1 Lincoln knows accumulation Client profiles for wealth accumulation planning with Lincoln life insurance Lincoln s diverse portfolio has solutions that provide: Market-driven growth opportunities Upside potential with downside protection Comprehensive guaranteed features Solutions for a variety of client risk tolerances and investment styles. Talk with your clients about planning with Lincoln life insurance for: Tax-deferred growth potential A tax-efficient financial resource through income tax-free policy loans* An income tax-free death benefit Help your clients accumulate wealth and reach their financial goals When it comes to planning for tax-deferred growth and retirement outcomes with reduced tax risk, consider Lincoln life insurance. It can be a valuable asset in your client s portfolio because of its death benefit protection and tax advantages. Below are four client profiles and potential accumulation strategies designed to help achieve their unique goals. Who are your clients? Risk-averse clients Concerned about market losses Have unneeded assets Strategy: Supplemental retirement planning High net worth couples Concerned about estate taxes Want to create a legacy for heirs and provide financial security for a spouse High net worth clients Need considerable coverage, but don t want to liquidate assets to pay premiums Want to leverage assets to optimize growth potential Strategy: Commercial premium finance Clients who ve maxed out retirement plan contributions Concerned about having sufficient retirement savings Have unneeded assets * Loans and withdrawals will reduce the policy s cash value and death benefit, may cause the policy to lapse, and may have tax implications. Strategy: Spousal lifetime access trust (SLAT) Strategy: Tax-efficient retirement planning with strong growth potential Not a deposit Not FDIC-insured Not insured by any federal government agency Not guaranteed by any bank or savings association May go down in value Insurance products issued by: The Lincoln National Life Insurance Company For agent or broker use only. Not for use with the public.

2 Risk-averse clients High net worth clients High net worth couples Clients who ve maxed out retirement plan contributions 36 % of retirees reported that taxes were a larger expense than anticipated. Source: The Spectrem Group Research Survey, 2013 Expense Challenges of Age Retirees. The strategy Supplementing retirement income Tax-efficient retirement planning for risk-averse clients Client: Healthy professionals Need death benefit protection for beneficiaries Concerned about the effect of taxes and market volatility on their retirement investments Financial situation: Income range is above $250,000 Contributing the maximum amount to their employer s retirement plan May have other taxable investments Recommendation: Diversify by purchasing life insurance to supplement taxable assets used for retirement planning, such as 401(k)s, IRAs and mutual funds. The death benefit is income taxfree and policy cash value accumulates tax deferred. When the client needs additional financial resources in retirement, they can access potential cash value through income tax-free policy loans or withdrawals.* Without the strategy Exposure to income and capital gains Money taken from tax-deferred assets is taxable Risk of higher marginal tax rate as client reports more income With the life insurance accumulation strategy Death benefit protection Cash value accumulation grows tax-deferred Access to cash from income tax-free loans and withdrawals to supplement retirement income (assuming the policy is a non-mec)* No penalties for distributions taken before age 59 ½ No requirements for a minimum distribution at any age Tax code provisions make life insurance a tax-efficient portfolio asset Tax advantages of life insurance Tax code provision Death proceeds are generally income tax-free. IRC Sec. 101(a)(1) Inside buildup of cash surrender value is generally not taxed. Rev. Rul Policy loans are not includable in income if the policy is not a modified endowment contract (MEC). No penalties for distribution prior to age 50 ½. No requirements of a minimum distribution at any age. Life insurance can even be exchanged, income tax-free, to an annuity. IRC Sec. 72(e)(s) IRC Sec. 72(v) IRC Sec. 1035(a) 2

3 The advantages of Lincoln WealthAdvantage IUL More inheritance, less tax for heirs with cost-effective death benefit protection Tax-efficient policy cash value growth potential with three indexed account options tied to the S&P 500 Index performance for greater asset diversification. 1 Greater income potential through participating loans by including all of the policy cash value, even any amount borrowed, in indexed account growth * More predictability with a fixed loan option with a guaranteed rate 2 The value of Lincoln WealthAdvantage IUL as a retirement supplement This example shows the benefits a Lincoln IUL can offer through policy loans. Tax-efficient retirement resource Taxable asset $79,500 pretax annualized policy loans $79,500 pretax annualized distribution $0 tax $31,800 tax $79,500 net annual cash flow $47,700 net after-tax annual cash flow Tax advantages of life insurance Does not affect your client s tax bracket, Social Security tax or Medicare premiums. Tax disadvantages Could increase your client s tax bracket, and reduce their Social Security benefits and increase their Medicare premiums. To equal the $79,500 tax-free cash flow, the taxable asset would need to distribute $131,623 per year. Example assumes a 39.6% tax. Assumptions: Female, age 43, preferred plus nontobacco, Lincoln WealthAdvantage Indexed UL increasing death benefit, switching to a level death benefit in year 21. $25,000 annual premium paid for 15 years, monthly participating loans taken in years 23 through 47, 6.5% assumed rate (6% assumed rate on loaned monies), state of Massachusetts. At 1% and current charges, policy lapses at age 70. * Distributions are taken through loans and withdrawals, which reduce a policy s cash surrender value and death benefit and may cause the policy to lapse. Loans are not considered income and are tax free. Withdrawals and surrenders are tax-free up to the cost basis, provided the policy is not a modified endowment contract (MEC). 1 The S&P 500 Index is a price index and does not reflect dividends paid on the underlying stocks. It is not possible to invest directly in an index. Diversification does not assure a profit or protect against loss in declining markets. 2 Guarantees are subject to the claims-paying ability of the issuing company. Limitations and conditions apply. Full case study LIF-TAX-FLI003 3

4 The strategy Commercial premium finance Leveraging assets to protect and create wealth Risk-averse clients High net worth clients High net worth couples Clients who ve maxed out retirement plan contributions 3in5 are more focused on asset growth, and nearly 50% say wealth protection is more important today than it was five years ago. Source: Lincoln Financial Group, M.O.O.D. of America Survey, Client: High net worth individuals between ages 40 and 65 Need death benefit protection to provide heirs with sufficient wealth to help preserve their inheritance and pay taxes Financial situation: Need tax-efficient ways to protect, build, and transfer wealth May have resources to purchase life insurance Not willing to liquidate assets to pay premiums Recommendation: Leverage rates to finance a policy that offers strong cash value growth potential. This could be more cost-efficient than paying premiums out-of pocket. It can also give your clients tax advantages and financial flexibility to reach their goals. A well-defined loan payment plan and exit strategies are also presented. Advantages It can be an effective way to minimize gift taxes by managing the annual gift exclusion and lifetime exemption. Because premium financing arrangements name an irrevocable life insurance trust (ILIT) as the life insurance policy beneficiary, the proceeds pass to heirs (trust beneficiaries) income and estate tax-free. Lincoln WealthAdvantage IUL and Lincoln WealthPreserve SIUL policies offer strong cash value potential with upside growth opportunities and downside protection. Your clients can obtain a significant amount of death benefit coverage by leveraging assets instead of liquidating them. They can keep assets that may appreciate or provide cash flow worth more than their premium financing costs. Full case study LIF-PREM-FLI001 Lincoln Financial Group (LFG) does not recommend, endorse, sponsor, or otherwise offer Premium Financing. LFG does not have an agreement with any Premium Financing organization, is not a party to the loan agreement, and does not receive any form of compensation from any financing arrangement. There are risks associated with commercial Premium Financing including but not limited to interest rate risk, additional collateral requirements, additional loan renewal requirements, and risk the lender could become insolvent. In addition, if the client fails to repay the loan based on the terms, the loan could default and the insurance contract could lapse. 4

5 The wealth protection strategy The advisor recommends a $3 million death benefit. He also suggests that the client look into establishing an ILIT and borrow from a commercial lender to fund a Lincoln WealthAdvantage IUL policy with the Surrender Value Enhancement Endorsement (SVEE), which will be held in the trust. The SVEE creates high cash surrender value in the early policy years. This gives the client supplemental collateral to obtain the loan for his annual premiums. 1 By using the 1-Year Point-to-Point Capped Account indexing strategy, the policy gives the client growth potential tied to S&P 500 Index performance up to a capped amount. 2 He now has the downside protection of a 1% crediting rate. 3 The client is able to get low interest financing and create a substantial legacy for his family. He pays minimum out-of-pocket costs, and maintains control of his investment portfolio. How the strategy works The client borrows $1,873,190. The client s lender pays the $187,319 policy premiums to Lincoln for 10 years. The client pays the lender 4% annual interest out-ofpocket.* If the policy earns 6.5%, there is sufficient cash value to pay back the loan by year 12. * This hypothetical assumes a 4% loan rate. Actual loan rates will differ. The outcome The client s policy gives him tax-deferred growth opportunities and downside protection through a 10% capped account and a 1% guaranteed floor. In the first year after paying back the loan, the client s net death benefit is worth $3,450,000. If the policy earns 6.5% each year, by age 70, the value of his death benefit will increase to $3,885,799. Assumptions: Male, age 50, standard nontobacco, tax bracket 28%, Lincoln WealthAdvantage IUL with Surrender Value Enhancement Endorsement (SVEE), $3 million death benefit with a maximum non-mec premium paid for 10 years, increasing by death benefit option for 25 years then switch to a level death benefit option, maximum annualized participating loans in year 12, State of North Carolina, 6.5% assumed rate (4% assumed rate on loaned monies). At 1% with current charges, policy lapses at age Distributions are through loans and withdrawals, which will reduce a policy s cash value and death benefit. Loans are not considered income and are not taxable while withdrawals are tax-free up to the policy s cost basis, provided the policy is not a MEC. 2 The S&P 500 Index is a price index and does not reflect dividends paid on the underlying stocks. It is not possible to invest directly in an index. 3 Guarantees are subject to the claims-paying ability of the issuing company. Policy charges remain in effect and could reduce your policy value. Full case study LIF-PREM-FLI001 5

6 The strategy Spousal lifetime access trusts (SLAT) Asset positioning, flexibility, cost control Risk-averse clients High net worth clients High net worth couples Clients who ve maxed out retirement plan contributions 50 % Nearly of investors believe that minimizing tax risk is important to their financial future. Source: Lincoln Financial Group, M.O.O.D. of America Survey, Client: Need death benefit protection Seek asset positions that have the flexibility to accommodate never-ending changes in their financial situation Want to maintain as much control as reasonably possible for as long as possible Financial situation: Concerned about estate taxes Need a tax-efficient way to pass wealth to children or grandchildren Would like their heirs to have financial privacy and avoid probate Recommendation: One spouse will establish a spousal lifetime access trust for the benefit of their spouse. This type of trust is typically funded with a single-life policy on the life of the grantor. By making the insured the only grantor, their spouse gains access to policy account values from trust distributions as a beneficiary of the trust, while simultaneously keeping the death benefit proceeds out of the insured s estate.* So, the death benefit will transfer to the couple s heirs free of estate and income taxes. Tax advantages Annual exclusion and gift tax exemption can be used to shelter gifts from taxation. Generally, death proceeds are not subject to estate or income tax. Distributions to trust beneficiaries in the form of policy loans or withdrawals are income tax-free.* Asset positioning, flexibility and cost control Trusts can provide support for spouse to maintain their lifestyle. SLAT trustee can utilize policy loans to provide support.* Can be structured to provide non-income-taxable support. Trust corpus is not includable for estate taxation. * Distributions are through loans and withdrawals, which will reduce a policy s cash value and death benefit. Loans are not considered income and are not taxable while withdrawals are tax-free up to the policy s cost basis, provided the policy is not a MEC. 6

7 How to implement the strategy Grantor establishes irrevocable life insurance trust with the spouse as the trust beneficiary. Grantor makes a gift of the premium amount to the trust (from separate funds). Trustee applies for life insurance on the grantor s life. Spouse has access to trust values as follows: Annual access to principal (limited to the greater of either $5,000 or 5% of principal)* Distributions for health, education, maintenance and support Distributions by trustee discretion Children may receive: Limited distributions during their parents lives, as determined by the trustee Distributions after the deaths of both parents Single life policy example using Lincoln AssetEdge VUL Grantor Husband Gift to SLAT $200K/yr for year 1 to 5 Grantor Husband $200K/yr in yrs Lifetime distribution Remainder SLAT Heirs Children Year Remainder 30 $2,202, $1,213, $1,590,404 Assumptions: Male, age 50, standard nontobacco, Lincoln AssetEdge VUL level death benefit, $200,000 annual premium paid for 5 years, monthly participating loans taken in years 23 through 47, 7% net assumed rate, state of North Carolina. Assuming 0% and current charges, policy lapses at age 73. 7

8 Risk-averse clients High net worth clients High net worth couples Clients who ve maxed out retirement plan contributions A retirement portfolio may not be able to recover from a market downturn even if the market rebounds and its investments earn strong returns in later years. Source: Morningstar, The strategy Maximize cash flow potential and protect assets Tax-efficient planning with strong growth potential Client: Want legacy protection and asset control Contributing the maximum amount to their employer s retirement plans Concerned about accumulating enough for retirement Financial situation: Concerned about estate taxes Need a tax-efficient way to pass wealth to children or grandchildren Would like their heirs to have financial privacy and avoid probate Recommendation: A variable universal life (VUL) policy with indexed account options can provide the death benefit protection needed during working years, as well as asset growth opportunities and a tax-efficient supplement for retirement. It also offers the freedom to change investment approach as life changes and the freedom to reallocate when they choose. Without the strategy Potentially encounter the issues of longevity, market volatility, and rising taxes Possibility of needing assets to last for 20 or more years of retirement No financial protection for their family With the strategy More financial protection for their family Sufficient retirement resources for the client to enjoy their lifestyle Protection from volatility and tax erosion in retirement The creation of an income tax -free legacy 8

9 The value of Lincoln AssetEdge VUL One solution for protection, accumulation and cash value the convenience of one policy that gives your clients options to help them achieve their goals throughout their lives. Accumulation years Maximum growth opportunities Freedom to choose growth opportunities from an array of investment options More than 70 variable investment options, plus a Fixed Account and indexed account options Multiple variable risk management strategies designed to stabilize volatility in all market environments Income-tax free death benefit Retirement years Moderate growth opportunities with guaranteed downside protection Guaranteed protection through indexed account options tied to the S&P 500 Index 1 with a guaranteed 1% floor 2 Cash flow potential through policy loans or withdrawals, including indexed account participating loans with guaranteed loan charge rates 3 Income that does not affect your: Income tax bracket Capital gains Medicare premiums Modified adjusted growth income Social Security benefits The goals More financial protection for their family Sufficient retirement resources to enjoy their lifestyle Protection from volatility and tax erosion when they retire 1 The S&P 500 Index is a price index and does not reflect dividends paid on the underlying stocks. It is not possible to invest directly in an index. 2 Guarantees are subject to the claims-paying ability of the issuing company. Policy charges remain in effect and could reduce your policy value. 3 Distributions are through loans and withdrawals, which will reduce a policy s cash value and death benefit. Loans are not considered income and are not taxable while withdrawals are tax-free up to the policy s cost basis, provided the policy is not a MEC. Full case study AE-LOAN-FLI001 9

10 Now identify prospective clients Revisit the four client profiles on page 1 and use the space below to name potential clients who would benefit from tax-efficient accumulation strategies featuring Lincoln life insurance. Risk-averse clients High net worth clients High net worth couples Clients who ve maxed out retirement plan contributions Start planning to help your clients protect and accumulate wealth with Lincoln life insurance solutions. 10

11 Leading-edge underwriting advantages With Lincoln, you ll have a dedicated team of underwriting professionals who go above and beyond the standards to assist you in helping your clients achieve their goals. Competitive advantages* Table Reduction Program available for all medical impairments: Table 3 to standard to age 70 up to $10 million Nontobacco rates available for non-cigarette smokers Health considerations Even if your client has a personal history of cardiovascular disease, diabetes, and/or cancer (includes certain thyroid, uterine, cervical, prostate and testicular cancers) Foreign national expertise More than 90 countries approved for preferred and preferred plus classes Large case know-how Dedicated chief Underwriting team for large capacity reviews Strong collaboration with our reinsurance partners to advocate for your business throughout the underwriting process * Face amount restrictions may apply and are subject to underwriting guidelines. Financial strength* The Lincoln National Life Insurance Company Lincoln Life & Annuity Company of New York A.M. Best A+ (2nd highest of 16) A+ (2nd highest of 16) Fitch A+ (5th highest of 19) A+ (5th highest of 19) Moody s A1 (5th highest of 21) A1 (5th highest of 21) Standard & Poor s AA (4th highest of 21) AA (4th highest of 21) * These ratings apply only to the claimspaying ability as of February 3, All ratings are subject to revision or withdrawal at any time by the rating agencies. The ratings are not recommendations to buy, sell or hold our securities. For more information on ratings, including rating agency outlooks, see #223 on the 2015 Fortune 500 list by revenue, #24 by assets (June 4, 2015) #79 on the 2015 Barron s 500 list by sales growth and cash flow returns on investments (May 3, 2015) 11

12 For more information about Lincoln wealth accumulation solutions, contact your representative. The value of partnering with Lincoln Financial Group Since 1905, Lincoln Financial Group has remained committed to helping Americans plan for retirement, prepare for the unexpected, and protect their wealth from taxes, long-term health costs, longevity, inflation, and market risk. Rely on Lincoln for the knowledge and experience to help you plan client outcomes. Not a deposit Not FDIC-insured Not insured by any federal government agency Not guaranteed by any bank or savings association May go down in value 2016 Lincoln National Corporation LincolnFinancial.com Lincoln Financial Group is the marketing name for Lincoln National Corporation and its affiliates. Affiliates are separately responsible for their own financial and contractual obligations. LCN POD 4/16 Z02 Order code: LIF-ACP-BRC001 The S&P 500 Index is a product of S&P Dow Jones Indices LLC ( SPDJI ), and has been licensed for use by The Lincoln National Life Insurance Company. 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 The Lincoln National Life Insurance Company. The Lincoln National Life Insurance Company s product is not sponsored, endorsed, sold or promoted by SPDJI, Dow Jones, S&P, their respective affiliates, and none of such parties make any representation regarding the advisability of investing in such products nor do they have any liability for any errors, omissions, or interruptions of the S&P 500 Index. Lincoln Financial Group affiliates, their distributors, and their respective employees, representatives and/or insurance agents do not provide tax, accounting or legal advice. Please consult an independent advisor as to any tax, accounting or legal statements made herein. Issuer: The Lincoln National Life Insurance Company, Fort Wayne, IN The Lincoln National Life Insurance Company does not solicit business in the state of New York, nor is it authorized to do so. All guarantees and benefits of the insurance policy are subject to the claims-paying ability of the issuing insurance company. They are not backed by the broker-dealer and/or insurance agency selling the policy, or any affiliates of those entities other than the issuing company affiliates, and none makes any representations or guarantees regarding the claims-paying ability of the issuer. Products, riders and features are subject to state availability. The insurance policy and riders have limitations, exclusions, and/or reductions. Check state availability. Distributor: Lincoln Financial Distributors, Inc., a broker-dealer Policies: Lincoln WealthAdvantage Indexed UL policy form UL6046/ICC15UL6046 and state variations with Surrender Value Enhancement Endorsement (SVEE) form END-7026 and with optional rider form J-5752/J Lincoln WealthPreserve Survivorship IUL policy form SUL6035 and state variations with optional rider form ICC14ABR-7012/ABR Lincoln AssetEdge VUL (2015) policy form LN683 and state variations with optional rider form ICC15LR631/ LR631. Variable products: Policy values will fluctuate and are subject to market risk and to possible loss of principal. Variable products are sold by prospectuses, which contain the investment objectives, risks, and charges and expenses of the variable product and its underlying investment options. Read carefully before investing. Only registered representatives can sell variable products. This brochure is not for use in the state of New York. For agent or broker use only. Not for use with the public.