Split-Dollar Plan Reward and Retain d Executives using Life Insurance A Supplemental Illustration Prepared for Key Executive Prepared by Premier Producer Premier Brokerage 1 Sales Drive Anytown, USA 98765 Life insurance is issued by Symetra Life Insurance Company, 777 108th Ave NE, Suite 1200, Bellevue, WA 98004-5135. Products are not available in all U.S. states or any U.S. territory. is a flexible premium adjustable life insurance policy with index-linked interest options. Page 1 of 12 LIM-1497 Please refer to the basic illustration for guaranteed elements and other important information. 8/18
Split-Dollar Plan Sex/Age/Class: Male/45/Preferred Non-Nicotine First Year Premium: $100,000 Important Information About This Supplemental Illustration A complete understanding of the split-dollar plan illustration shown here requires an understanding of the variables involved and the risks associated with each. This understanding will allow you to evaluate the strategy of using life insurance to create a split-dollar plan for key executives. However, this supplemental illustration is intended as a planning option and is not a recommendation to use a split-dollar plan to fund the purchase of life insurance. This supplemental illustration is not intended as investment, accounting, legal or tax advice and Symetra Life Insurance Company does not give investment, accounting, legal or tax advice. This illustration does not attempt to provide more than general U.S. tax information associated with life insurance policies. This information is written to support the promotion or marketing of life insurance issued by Symetra Life Insurance Company. You should seek advice based on your particular circumstances from an independent tax advisor. IRS Final Regulations on Split-Dollar Arrangements ("final regulations") apply to split-dollar arrangements entered into or materially modified after September 17, 2003. The final regulations require the parties in a split-dollar life insurance arrangement to be taxed under one of two "mutually exclusive regimes": an "economic benefit regime" or a "loan regime." Under the economic benefit regime, the premium payments by the employer result in taxable "economic benefits" to the employee. Under a loan regime, premium payments by the employer are treated as a series of interest bearing loans to the employee. In April 2007, the IRS released Notice 2007-34, which specifically addresses the application of 409A deferred compensation rules to split-dollar arrangements. Split-dollar arrangements that have a deferred compensation component may be subject to 409A rules. This split-dollar illustration is intended to demonstrate various planning alternatives based on the assumptions and data provided by you, the client. The accuracy of this data will enhance the value of this analysis. Page 2 of 12 Please refer to the basic illustration for guaranteed elements and other important information.
Split-Dollar Plan Sex/Age/Class: Male/45/Preferred Non-Nicotine First Year Premium: $100,000 regime split-dollar regime split dollar is an arrangement (referred to as a section 7872 loan ) 1 in which the key executive or a third party trust owns the life insurance policy and the employer advances premium payments for the benefit of the executive. The advances are considered to be loans to the executive, structured as either demand or term notes and are secured by the policy for repayment to the employer. At termination of the arrangement, the employer is typically repaid the outstanding loan balance and the assignment is released, resulting in full ownership by the executive or trust. Taxation: During the course of the arrangement, loan interest can be imputed to the executive, who pays income tax on it. If the executive is not charged at least the applicable federal rate (AFR), 2 taxable income equal to the difference between the AFR and the interest rate charged is imputed income to the executive subject to the treatment of below market loans under Internal Revenue Code 7872. The imputed interest income (referred to as forgone interest ) may be deductible by the employer 3. If the life insurance policy is owned by a trust, the executive will be deemed to have made a gift of the imputed interest income to the trust. 4 Executive Agreement of Premium Interest Executive or third party (e.g., ILIT) is the owner of the policy and pays an agreed upon loan interest to the employer. At termination of the arrangement, the employer is repaid the value of the outstanding loan. The executive has the option to pay loan interest due to the employer each year or have interest imputed and claim the loan interest as taxable income. Pays portion of death benefit Symetra Life Insurance Policy Remainder of death benefit Beneficiaries Receives the executive s portion of the death benefit generally free of federal income tax and, if properly structured free of federal estate tax. Post-retirement: The split-dollar arrangement is generally terminated at the executive s retirement. The employer receives the outstanding loan balance. To the extent any loan balance is forgiven to the executive, income will be recognized. 1 A section 7872 loan is governed by IRS Section 7872 split dollar regime loans and will use the applicable federal rate (AFR) to measure taxation for income and gift tax purposes. 2 The AFR is published monthly by the IRS. A loan regime split dollar arrangement may use blended annual short term interest for a demand loan or an appropriate term interest rate for a term loan. 3 Foregone interest is deemed a transfer from the employer to the executive/owner and then paid back by the executive/owner to the employer as interest income. Refer to Internal Revenue Code 1.7872 15(e)(3). 4 Any gift made to an ILIT that is intended to be a present interest and completed gift must be made to an ILIT which contains what is called "Crummey power" language. Please refer to the basic illustration for guaranteed elements and other important information. Page 3 of 12
Sex/Age/Class: Male/45/Preferred Non-Nicotine First Year Premium: $100,000 Exit Strategies for Split Dollar Plans Before entering a split dollar arrangement, the employer and executive should agree to a termination or "rollout" strategy to ensure an appropriate outcome when exiting the plan. The exit strategy should outline how premium advances will be repaid to the employer and how the policy will be funded on an ongoing basis (if necessary). Problems may occur when there are inadequate policy values to carry out these objectives. Remember that when a split dollar agreement is terminated, if the employer passes something of value to the executive to which he or she is entitled, the employer will be entitled to a tax deduction for the amount given up and the executive will include a corresponding amount as ordinary income in the year received. Several exit strategies are available: Death benefit If the executive dies while the agreement is in place, a portion of the death proceeds can be used to repay the employer the greater of premiums paid or policy values, or if using loan regime split dollar any outstanding loan amount. Policy cash values If the policy cash value exceeds the amount to repay the employer, and the employer agrees, the executive can withdraw and/or borrow policy cash value to repay the greater of premiums paid or policy value, or if using loan regime split dollar any outstanding loan amount. The distribution of policy cash value will reduce the death benefit and may cause the policy to lapse. 5 Other resources The executive or third party trust may repay the employer from other personal or trust assets. Transfer of the policy If using an endorsement split dollar plan, the employer can transfer the policy ownership to the executive or trust as an income taxable bonus based on the policy value. The bonus amount will be treated as a gift from the executive if a trust is used. 6 5 s and withdrawals are only available prior to the death of the insured and will reduce the policy death benefit and cash surrender value. This may cause the policy to lapse and may be taxable. Withdrawals or loans on modified endowment contracts (MECs) may be subject to federal income tax and a 10% additional tax on amounts taken prior to age 59½. 6 Any gift to an ILIT that is intended to be a present interest and completed gift must be made to an ILIT which contains what is called "Crummey power" language. Please refer to the basic illustration for guaranteed elements and other important information. Page 4 of 12
Sex/Age/Class: Male/45/Preferred Non-Nicotine First Year Premium: $100,000 s A split dollar plan has numerous advantages for employers and their most talented executives. Business Owners: Executive retention A split dollar plan provides a selective, additional benefit to help reward and retain key executives. Flexibility Flexibility to customize and choose who participates, unlike the restrictions of traditional retirement plan benefits. Simplicity An easy to administer, cost effective way to provide a valuable employee benefit, with no ERISA participation, reporting, or disclosure requirements and minimal administrative costs. Cost recovery The employer can recover the costs of the split dollar arrangement from the death benefit proceeds if death occurs during employment or from policy values when the agreement is terminated. Executives: Life insurance protection Life insurance protection is provided at a reasonable cost, and beneficiaries receive a death benefit generally free of federal income taxes and, if properly structured, free of federal estate taxes. Flexible design The plan can be tailored to meet the executive's individual needs. Minimize income taxes The income tax costs to the executive can be covered with a cash bonus from the employer. For executive or trust ownership Tax deferred growth The potential policy cash value accumulation grows tax deferred inside the life insurance policy. Tax advantaged income Tax free supplemental income may be attained through a combination of policy loans and withdrawals. But note that distributions from the policy will reduce the policy cash value and may reduce the death benefit payable to beneficiaries. 7 7 s and withdrawals are only available prior to the death of the insured and will reduce the policy death benefit and cash surrender value. This may cause the policy to lapse and may be taxable. Withdrawals or loans on modified endowment contracts (MECs) may be subject to federal income tax and a 10% additional tax on amounts taken prior to age 59½. Please refer to the basic illustration for guaranteed elements and other important information. Page 5 of 12
Sex/Age/Class: Male/45/Preferred Non-Nicotine First Year Premium: $100,000 Considerations Formal agreement Split dollar arrangements that require formal, written agreements are put in place. Cash flow must have cash flow to fund the life insurance premiums. Economic benefit costs The economic benefit costs will increase with the insured's age. If a survivorship policy is used, the economic benefit will increase on the first death. Switch dollar When economic benefit costs increase and become less economical, the collateral assignment may be terminated and a promissory note established with an initial loan balance that includes all previous premiums paid or an amount equal to the life insurance policy's cash value, if greater. Modified Endowment Contracts (MECs) Pledging a life insurance policy classified as a Modified Endowment Contract (MEC) as collateral will be treated as if a distribution has been made from the policy even if no actual distributions have been made. At this point, any cash value in excess of basis (premium paid) is taxable as ordinary income. In addition, to the extent there is gain in the contract, a 10% additional tax may occur if owner of the policy is under age 59½. 8 Final split dollar regulations The final split dollar IRS regulations determine how a split dollar plan can be structured after September 17, 2003. For split dollar arrangements where the employer is designated as the owner of the policy or where the executive is designated as the owner of the policy, but does not have access to any portion of the policy's cash values, an economic benefit regime will apply. For split dollar arrangements where the executive is designated as the owner of the life insurance policy and has access to all or a portion of the policy cash values, a loan regime will apply. 8 Refer to Internal Revenue Code (IRC) 72(e)(10) and IRC 72(e)(4)(a). Please refer to the basic illustration for guaranteed elements and other important information. Page 6 of 12
Sex/Age/Class: Male/45/Preferred Non Nicotine First Year Premium: $100,000 Regime Split-Dollar - Summary Initial life insurance crediting rate assumed: 6.96% XYZ Corporation's Tax Bracket: 21.00% Key Executive's Tax Bracket: 32.00% XYZ Corporation Key Executive After Tax Outlay 10 Net Surrender Year Age Premium Bonus to Executive After Tax Outlay 9 Cumulative Net Surrender 1 45 100,000 100,000 0 100,000 100,000 4,672 100,000 960 0 2,136,522 2 46 100,000 100,000 0 100,000 200,000 102,336 200,000 1,920 0 2,132,232 3 47 100,000 100,000 0 100,000 300,000 206,403 300,000 2,880 0 2,134,324 4 48 100,000 100,000 0 100,000 400,000 317,361 400,000 3,840 0 2,143,307 5 49 100,000 100,000 0 100,000 500,000 435,755 500,000 4,800 0 2,159,704 6 50 100,000 100,000 0 100,000 600,000 575,582 600,000 5,760 0 2,184,075 7 51 100,000 100,000 0 100,000 700,000 700,000 700,000 6,720 23,933 2,216,970 8 52 100,000 100,000 0 100,000 800,000 800,000 800,000 7,680 81,367 2,258,969 9 53 100,000 100,000 0 100,000 900,000 900,000 900,000 8,640 148,541 2,310,686 10 54 100,000 100,000 0 100,000 1,000,000 1,000,000 1,000,000 9,600 226,067 2,372,778 Total: 1,000,000 1,000,000 0 1,000,000 52,800 11 55 0 0 0 0 1,000,000 1,000,000 1,000,000 9,600 321,137 2,467,848 12 56 0 0 0 0 1,000,000 1,000,000 1,000,000 9,600 423,424 2,570,135 13 57 0 0 0 0 1,000,000 1,000,000 1,000,000 9,600 533,471 2,680,182 14 58 0 0 0 0 1,000,000 1,000,000 1,000,000 9,600 651,877 2,798,588 15 59 0 0 0 0 1,000,000 1,000,000 1,000,000 9,600 779,289 2,926,000 16 60 0 0 0 0 1,000,000 1,000,000 1,000,000 9,600 916,415 3,063,126 17 61 0 0 0 0 1,000,000 1,000,000 1,000,000 9,600 1,064,012 3,210,723 18 62 0 0 0 0 1,000,000 1,000,000 1,000,000 9,600 1,222,871 3,369,582 19 63 0 0 0 0 1,000,000 1,000,000 1,000,000 9,600 1,393,827 3,540,538 20 64 0 0 0 0 1,000,000 1,000,000 1,000,000 9,600 1,577,736 3,724,447 Total: 1,000,000 1,000,000 0 1,000,000 148,800 21 65 0 0 1,000,000 210,000 0 0 0 0 2,429,836 4,404,447 22 66 0 0 0 0 0 0 0 0 2,615,353 4,404,447 23 67 0 0 0 0 0 0 0 0 2,815,373 4,404,447 24 68 0 0 0 0 0 0 0 0 3,031,132 4,404,447 25 69 0 0 0 0 0 0 0 0 3,264,077 4,404,447 26 70 0 0 0 0 0 0 0 0 3,515,938 4,404,447 27 71 0 0 0 0 0 0 0 0 3,789,110 4,404,447 28 72 0 0 0 0 0 0 0 0 4,085,947 4,535,401 29 73 0 0 0 0 0 0 0 0 4,408,654 4,805,433 30 74 0 0 0 0 0 0 0 0 4,757,435 5,090,455 Total: 1,000,000 1,000,000 1,000,000 790,000 148,800 The assumed loan interest rate is 3% and the assumed Applicable Federal Rate is 3%. Starting in year 21, the Section 7872 Demand s are terminated and the employer pays a bonus to the executive in the amount equal to the cumulative loan amount. 9 Refer to Summary for more information. 10 Refer to Executive Summary for more information. Please refer to the basic illustration for guaranteed elements and other important information. Page 7 of 12
Sex/Age/Class: Male/45/Preferred Non Nicotine First Year Premium: $100,000 Regime Split-Dollar - Summary Initial life insurance crediting rate assumed: 6.96% XYZ Corporation's Tax Bracket: 21.00% Key Executive's Tax Bracket: 32.00% XYZ Corporation Key Executive Year Age Premium Bonus to Executive After Tax Outlay 11 Cumulative Net Surrender After Tax Outlay 12 Net Surrender 31 75 0 0 0 0 0 0 0 0 5,134,675 5,391,409 32 76 0 0 0 0 0 0 0 0 5,541,370 5,818,439 33 77 0 0 0 0 0 0 0 0 5,979,717 6,278,702 34 78 0 0 0 0 0 0 0 0 6,452,055 6,774,658 35 79 0 0 0 0 0 0 0 0 6,960,874 7,308,918 36 80 0 0 0 0 0 0 0 0 7,508,815 7,884,255 37 81 0 0 0 0 0 0 0 0 8,098,430 8,503,352 38 82 0 0 0 0 0 0 0 0 8,732,516 9,169,142 39 83 0 0 0 0 0 0 0 0 9,413,961 9,884,659 40 84 0 0 0 0 0 0 0 0 10,145,717 10,653,003 Total: 1,000,000 1,000,000 1,000,000 790,000 148,800 41 85 0 0 0 0 0 0 0 0 10,930,474 11,476,997 42 86 0 0 0 0 0 0 0 0 11,771,465 12,360,038 43 87 0 0 0 0 0 0 0 0 12,671,608 13,305,188 44 88 0 0 0 0 0 0 0 0 13,633,553 14,315,231 45 89 0 0 0 0 0 0 0 0 14,659,711 15,392,697 46 90 0 0 0 0 0 0 0 0 15,752,514 16,540,139 47 91 0 0 0 0 0 0 0 0 16,933,888 17,611,243 48 92 0 0 0 0 0 0 0 0 18,216,405 18,762,897 49 93 0 0 0 0 0 0 0 0 19,615,726 20,008,041 50 94 0 0 0 0 0 0 0 0 21,151,651 21,363,167 Total: 1,000,000 1,000,000 1,000,000 790,000 148,800 51 95 0 0 0 0 0 0 0 0 22,803,980 23,032,020 52 96 0 0 0 0 0 0 0 0 24,580,492 24,826,297 53 97 0 0 0 0 0 0 0 0 26,489,877 26,754,776 54 98 0 0 0 0 0 0 0 0 28,540,324 28,825,727 55 99 0 0 0 0 0 0 0 0 30,740,251 31,047,654 56 100 0 0 0 0 0 0 0 0 33,099,107 33,430,099 Total: 1,000,000 1,000,000 1,000,000 790,000 148,800 The assumed loan interest rate is 3% and the assumed Applicable Federal Rate is 3%. Starting in year 21, the Section 7872 Demand s are terminated and the employer pays a bonus to the executive in the amount equal to the cumulative loan amount. 11 Refer to Summary for more information. 12 Refer to Executive Summary for more information. Please refer to the basic illustration for guaranteed elements and other important information. Page 8 of 12
Sex/Age/Class: Male/45/Preferred Non Nicotine First Year Premium: $100,000 Summary Initial life insurance crediting rate assumed: 6.96% XYZ Corporation's Tax Bracket: 21.00% Year Age Premium Bonus to Executive Repayment After Tax Outlay Cumulative Net Surrender 1 45 100,000 100,000 0 0 100,000 100,000 4,672 100,000 2 46 100,000 100,000 0 0 100,000 200,000 102,336 200,000 3 47 100,000 100,000 0 0 100,000 300,000 206,403 300,000 4 48 100,000 100,000 0 0 100,000 400,000 317,361 400,000 5 49 100,000 100,000 0 0 100,000 500,000 435,755 500,000 6 50 100,000 100,000 0 0 100,000 600,000 575,582 600,000 7 51 100,000 100,000 0 0 100,000 700,000 700,000 700,000 8 52 100,000 100,000 0 0 100,000 800,000 800,000 800,000 9 53 100,000 100,000 0 0 100,000 900,000 900,000 900,000 10 54 100,000 100,000 0 0 100,000 1,000,000 1,000,000 1,000,000 Total: 1,000,000 1,000,000 0 0 1,000,000 11 55 0 0 0 0 0 1,000,000 1,000,000 1,000,000 12 56 0 0 0 0 0 1,000,000 1,000,000 1,000,000 13 57 0 0 0 0 0 1,000,000 1,000,000 1,000,000 14 58 0 0 0 0 0 1,000,000 1,000,000 1,000,000 15 59 0 0 0 0 0 1,000,000 1,000,000 1,000,000 16 60 0 0 0 0 0 1,000,000 1,000,000 1,000,000 17 61 0 0 0 0 0 1,000,000 1,000,000 1,000,000 18 62 0 0 0 0 0 1,000,000 1,000,000 1,000,000 19 63 0 0 0 0 0 1,000,000 1,000,000 1,000,000 20 64 0 0 0 0 0 1,000,000 1,000,000 1,000,000 Total: 1,000,000 1,000,000 0 0 1,000,000 21 65 0 0 1,000,000 1,000,000 210,000 0 0 0 22 66 0 0 0 0 0 0 0 0 23 67 0 0 0 0 0 0 0 0 24 68 0 0 0 0 0 0 0 0 25 69 0 0 0 0 0 0 0 0 26 70 0 0 0 0 0 0 0 0 27 71 0 0 0 0 0 0 0 0 28 72 0 0 0 0 0 0 0 0 29 73 0 0 0 0 0 0 0 0 30 74 0 0 0 0 0 0 0 0 Total: 1,000,000 1,000,000 1,000,000 1,000,000 790,000 The assumed loan interest rate is 3% and the assumed Applicable Federal Rate is 3%. Starting in year 21, the Section 7872 Demand s are terminated and the employer pays a bonus to the executive in the amount equal to the cumulative loan amount. Please refer to the basic illustration for guaranteed elements and other important information. Page 9 of 12
Sex/Age/Class: Male/45/Preferred Non Nicotine First Year Premium: $100,000 Summary Initial life insurance crediting rate assumed: 6.96% Year Age XYZ Corporation's Tax Bracket: 21.00% Premium Bonus to Executive Repayment After Tax Outlay Cumulative Net Surrender 31 75 0 0 0 0 0 0 0 0 32 76 0 0 0 0 0 0 0 0 33 77 0 0 0 0 0 0 0 0 34 78 0 0 0 0 0 0 0 0 35 79 0 0 0 0 0 0 0 0 36 80 0 0 0 0 0 0 0 0 37 81 0 0 0 0 0 0 0 0 38 82 0 0 0 0 0 0 0 0 39 83 0 0 0 0 0 0 0 0 40 84 0 0 0 0 0 0 0 0 Total: 1,000,000 1,000,000 1,000,000 1,000,000 790,000 41 85 0 0 0 0 0 0 0 0 42 86 0 0 0 0 0 0 0 0 43 87 0 0 0 0 0 0 0 0 44 88 0 0 0 0 0 0 0 0 45 89 0 0 0 0 0 0 0 0 46 90 0 0 0 0 0 0 0 0 47 91 0 0 0 0 0 0 0 0 48 92 0 0 0 0 0 0 0 0 49 93 0 0 0 0 0 0 0 0 50 94 0 0 0 0 0 0 0 0 Total: 1,000,000 1,000,000 1,000,000 1,000,000 790,000 51 95 0 0 0 0 0 0 0 0 52 96 0 0 0 0 0 0 0 0 53 97 0 0 0 0 0 0 0 0 54 98 0 0 0 0 0 0 0 0 55 99 0 0 0 0 0 0 0 0 56 100 0 0 0 0 0 0 0 0 Total: 1,000,000 1,000,000 1,000,000 1,000,000 790,000 The assumed loan interest rate is 3% and the assumed Applicable Federal Rate is 3%. Starting in year 21, the Section 7872 Demand s are terminated and the employer pays a bonus to the executive in the amount equal to the cumulative loan amount. Please refer to the basic illustration for guaranteed elements and other important information. Page 10 of 12
Sex/Age/Class: Male/45/Preferred Non Nicotine First Year Premium: $100,000 Key Executive's Tax Bracket: 32.00% Executive Summary Initial life insurance crediting rate assumed: 6.96% Year Age Cumulative Interest @ 3.00% Bonus From Repayment Income Tax Due Net Policy Distributions 12 After Tax Outlay Net Surrender 1 45 100,000 3,000 0 0 960 0 960 0 2,136,522 2 46 200,000 6,000 0 0 1,920 0 1,920 0 2,132,232 3 47 300,000 9,000 0 0 2,880 0 2,880 0 2,134,324 4 48 400,000 12,000 0 0 3,840 0 3,840 0 2,143,307 5 49 500,000 15,000 0 0 4,800 0 4,800 0 2,159,704 6 50 600,000 18,000 0 0 5,760 0 5,760 0 2,184,075 7 51 700,000 21,000 0 0 6,720 0 6,720 23,933 2,216,970 8 52 800,000 24,000 0 0 7,680 0 7,680 81,367 2,258,969 9 53 900,000 27,000 0 0 8,640 0 8,640 148,541 2,310,686 10 54 1,000,000 30,000 0 0 9,600 0 9,600 226,067 2,372,778 Total: 165,000 0 0 52,800 0 52,800 11 55 1,000,000 30,000 0 0 9,600 0 9,600 321,137 2,467,848 12 56 1,000,000 30,000 0 0 9,600 0 9,600 423,424 2,570,135 13 57 1,000,000 30,000 0 0 9,600 0 9,600 533,471 2,680,182 14 58 1,000,000 30,000 0 0 9,600 0 9,600 651,877 2,798,588 15 59 1,000,000 30,000 0 0 9,600 0 9,600 779,289 2,926,000 16 60 1,000,000 30,000 0 0 9,600 0 9,600 916,415 3,063,126 17 61 1,000,000 30,000 0 0 9,600 0 9,600 1,064,012 3,210,723 18 62 1,000,000 30,000 0 0 9,600 0 9,600 1,222,871 3,369,582 19 63 1,000,000 30,000 0 0 9,600 0 9,600 1,393,827 3,540,538 20 64 1,000,000 30,000 0 0 9,600 0 9,600 1,577,736 3,724,447 Total: 465,000 0 0 148,800 0 148,800 21 65 0 0 1,000,000 1,000,000 320,000 320,000 0 2,429,836 4,404,447 22 66 0 0 0 0 0 0 0 2,615,353 4,404,447 23 67 0 0 0 0 0 0 0 2,815,373 4,404,447 24 68 0 0 0 0 0 0 0 3,031,132 4,404,447 25 69 0 0 0 0 0 0 0 3,264,077 4,404,447 26 70 0 0 0 0 0 0 0 3,515,938 4,404,447 27 71 0 0 0 0 0 0 0 3,789,110 4,404,447 28 72 0 0 0 0 0 0 0 4,085,947 4,535,401 29 73 0 0 0 0 0 0 0 4,408,654 4,805,433 30 74 0 0 0 0 0 0 0 4,757,435 5,090,455 Total: 465,000 1,000,000 1,000,000 468,800 320,000 148,800 The assumed loan interest rate is 3% and the assumed Applicable Federal Rate is 3%. Starting in year 21, the Section 7872 Demand s are terminated and the employer pays a bonus to the executive in the amount equal to the cumulative loan amount. 12 Net Policy Distributions from the life insurance policy are based on loans and withdrawals taken over the specified time period. Refer to footnote 5 for more details. Please refer to the basic illustration for guaranteed elements and other important information. Page 11 of 12
Sex/Age/Class: Male/45/Preferred Non Nicotine First Year Premium: $100,000 Key Executive's Tax Bracket: 32.00% Executive Summary Initial life insurance crediting rate assumed: 6.96% Year Age Cumulative Interest @ 3.00% Bonus From Repayment Income Tax Due Net Policy Distributions 13 After Tax Outlay Net Surrender 31 75 0 0 0 0 0 0 0 5,134,675 5,391,409 32 76 0 0 0 0 0 0 0 5,541,370 5,818,439 33 77 0 0 0 0 0 0 0 5,979,717 6,278,702 34 78 0 0 0 0 0 0 0 6,452,055 6,774,658 35 79 0 0 0 0 0 0 0 6,960,874 7,308,918 36 80 0 0 0 0 0 0 0 7,508,815 7,884,255 37 81 0 0 0 0 0 0 0 8,098,430 8,503,352 38 82 0 0 0 0 0 0 0 8,732,516 9,169,142 39 83 0 0 0 0 0 0 0 9,413,961 9,884,659 40 84 0 0 0 0 0 0 0 10,145,717 10,653,003 Total: 465,000 1,000,000 1,000,000 468,800 320,000 148,800 41 85 0 0 0 0 0 0 0 10,930,474 11,476,997 42 86 0 0 0 0 0 0 0 11,771,465 12,360,038 43 87 0 0 0 0 0 0 0 12,671,608 13,305,188 44 88 0 0 0 0 0 0 0 13,633,553 14,315,231 45 89 0 0 0 0 0 0 0 14,659,711 15,392,697 46 90 0 0 0 0 0 0 0 15,752,514 16,540,139 47 91 0 0 0 0 0 0 0 16,933,888 17,611,243 48 92 0 0 0 0 0 0 0 18,216,405 18,762,897 49 93 0 0 0 0 0 0 0 19,615,726 20,008,041 50 94 0 0 0 0 0 0 0 21,151,651 21,363,167 Total: 465,000 1,000,000 1,000,000 468,800 320,000 148,800 51 95 0 0 0 0 0 0 0 22,803,980 23,032,020 52 96 0 0 0 0 0 0 0 24,580,492 24,826,297 53 97 0 0 0 0 0 0 0 26,489,877 26,754,776 54 98 0 0 0 0 0 0 0 28,540,324 28,825,727 55 99 0 0 0 0 0 0 0 30,740,251 31,047,654 56 100 0 0 0 0 0 0 0 33,099,107 33,430,099 Total: 465,000 1,000,000 1,000,000 468,800 320,000 148,800 The assumed loan interest rate is 3% and the assumed Applicable Federal Rate is 3%. Starting in year 21, the Section 7872 Demand s are terminated and the employer pays a bonus to the executive in the amount equal to the cumulative loan amount. 13 Net Policy Distributions from the life insurance policy are based on loans and withdrawals taken over the specified time period. Refer to footnote 5 for more details. Please refer to the basic illustration for guaranteed elements and other important information. Page 12 of 12