Prepared for: Paul and Sally Williams 34 Bonnie Drive Agoura Hills CA 91301 Prepared by: Frank Smith, CFP Cuna 20271 SW Birch Newport Beach CA 92660 Phone: 949-922-7536 Email: steven.chapin@advisys.com 0_cuna.User1_ba66e20a-fce3-4d88-9cf9-a67ef18325e3_633765895629561723
Table of Contents Disclaimer Notice...1 The Need for Responsible Planning...2 Client Data and Assumptions Summary... 3 Survivor Needs - Client 1 dies... 7 Survivor's Immediate Needs - Client 1 dies...8 Survivor Needs Timeline - Client 1 dies...9 Term Life Insurance... 11 Universal Life Insurance... 14 0_cuna.User1_ba66e20a-fce3-4d88-9cf9-a67ef18325e3_633765895629561723
Disclosure Notice The information that follows is intended to serve as a basis for further discussion with your financial, legal, tax and/or accounting advisors. It is not a substitute for competent advice from these advisors. The actual application of some of these concepts may be the practice of law and is the proper responsibility of your attorney. The application of other concepts may require the guidance of a tax or accounting advisor. The company or companies listed below are not authorized to practice law or to provide legal, tax or accounting advice. Although great effort has been taken to provide accurate data and explanations, and while the sources are deemed reliable, the information that follows should not be relied upon for preparing tax returns or making investment decisions. This information has neither been audited by nor verified by the company or companies listed below and is therefore not guaranteed by them as to its accuracy. The information provided herein was created by echowealth and not by CUNA Brokerage Services, Inc. If a numerical analysis is shown, the results are neither guarantees nor projections, and actual results may differ significantly. Any assumptions as to interest rates, rates of return, inflation, or other values are hypothetical and for illustrative purposes only. Rates of return shown are not indicative of any particular investment, and will vary over time. Any reference to past performance is not indicative of future results and should not be taken as a guaranteed projection of actual returns from any recommended investment. Securities are sold and advisory services are provided through CUNA Brokerage Services, Inc. (CBSI) member FINRA/SIPC, a Broker/Dealer and Investment Advisor, 2000 Heritage Way, Waverly, IA 50677, toll free (866) 512-6109. Non-deposit investment and insurance products are not federally insured, involve investment risk, may lose value and are not obligations of or guaranteed by the financial institution. CBSI is under contract with the financial institution through the financial services program to make securities available to members. 0_cuna.User1_ba66e20a-fce3-4d88-9cf9-a67ef18325e3_633765895629561723 Page 1 of 17
The Need for Responsible Planning What If You Were to Die Today? Many individuals recognize the benefits of planning for the future. Such efforts often uncover problems and frequently provide the motivation to make needed changes. For the most part, the issues involved are positive and enjoyable (e.g., retirement, well-educated children). However, planning for the unexpected known as risk management can be less pleasant. A key part of risk management is answering the question, What if I were to die today? Preparing for an untimely death is often referred to as survivor benefit planning. A subset of estate planning, it addresses the need to keep one s family in their current world, financially. Understandably, no one likes to contemplate his or her own demise. For some, death seems a distant, future event. Others are simply too busy. Whatever the reason, delaying this part of planning can result in expensive, unintended, even tragic consequences. Survivor Benefit Needs The ultimate purpose of survivor benefit planning is twofold: (1) to ensure that the ongoing income needs of the survivor(s) are met, and (2) to provide for immediate lumpsum cash needs. Income needs: How much income will the survivors need, now and in the future, to cover the following: Household living expenses: Will the family stay in the same house? Can they afford to? Do they want to? Will they have the option? Additional childcare: Will there be a need for more help with young children? Educational expenses: Will there be enough money for the children to go to college? Lump-sum needs: How much will the survivors need immediately and in cash? Consider the following: Final expenses: More than the funeral, this includes unpaid medical bills, which, after a long illness, can be substantial. Estate settlement costs: Probate expenses, attorney s fees, death taxes, etc. Mortgage payoff and debt reduction: Will it be important to provide a paid-off house? Are there debts that should be retired? One Final Question If you died today, would your plan be ready? 0_cuna.User1_ba66e20a-fce3-4d88-9cf9-a67ef18325e3_633765895629561723 Page 2 of 17
Client Data and Assumptions Summary April 28, 2009 Client Date of Birth Retirement Age Social Security Start Age Paul 2/2/1970 65 66 Sally 4/4/1972 65 66 Dependent of Client 1 Dependent of Client 2 Dependent Date of Birth Ryan 2/4/2002 Yes Yes Patty 3/6/2004 Yes Yes Earned Income Client Amount Paul $78,000 Sally $73,000 Social Security Benefit Selection Retirement User Input Survivor User Input Client Paul Earnings $0 $0 Sally Earnings $0 $0 Other Income Sources Start Age PV FV Lump Sum % Inflate Available to Survivors Name / Owner Amount Pension Paul $1,500 65 FV No 0.00% No 0_cuna.User1_ba66e20a-fce3-4d88-9cf9-a67ef18325e3_633765895629561723 Page 3 of 17
Client Data and Assumptions Summary Retirement Plans Monthly Contribution Company Match Annual Increase In Contribution Assumed Rate of Return Client Amount Paul $100,000 $0 $0 4.00% 0.00% Sally $50,000 $0 $0 4.00% 0.00% Other Assets Monthly Contribution Assumed Rate of Return Asset Balance Cash $15,000 Other $15,000 $0 0.00% Insurance Insured Disability Monthly Benefit Elimination Period Benefit Period COLA Life Insurance Insured Benefit Paul $50,000 Sally $50,000 0_cuna.User1_ba66e20a-fce3-4d88-9cf9-a67ef18325e3_633765895629561723 Page 4 of 17
Client Data and Assumptions Summary Cash Needed at Death Amount Mortgage $150,000 Other Debts $30,000 Final Expenses $5,000 Emergency reserve fund equals total income for 3 months. Income Needs for Survivor Analysis From today until the youngest child reaches age 18; 75.00% of current income. Beginning when the youngest child reaches age 18; 70.00% of current income. Beginning at retirement; 60.00% of current income. Percentage of Income to Replace with Client Disability Income Paul 60.00% Sally 60.00% Assumption Data Annual Inflation Rate 4.00% Annual Education Inflation Rate 5.00% Annual Employment Income Inflation Rate for Client 1 4.00% Annual Employment Income Inflation Rate for Client 2 4.00% Annual Social Security Benefit Inflation Rate 5.00% Assumed Rate of Return on Education Assets 11.00% Assumed Rate of Return for Survivor Analysis 6.00% Assumed Rate of Return for Retirement Analysis 6.00% Mortality Age 90 0_cuna.User1_ba66e20a-fce3-4d88-9cf9-a67ef18325e3_633765895629561723 Page 5 of 17
College Funding Data and Assumptions Summary April 28, 2009 Student School Name Date of Birth Start Age Annual Costs % to Fund Current Amount Saved Planned Monthly Savings Span Ryan University of California: Los Angeles 2/4/2002 18 4 $23,301 100% $0 $0 Patty Stanford University 3/6/2004 18 4 $49,448 100% $0 $0 Assumptions Annual Education Inflation Rate 5.00% Assumed Rate of Return on Education Assets 11.00% 0_cuna.User1_ba66e20a-fce3-4d88-9cf9-a67ef18325e3_633765895629561723 Page 6 of 17
Survivor Needs Today and in the Future In the event of Paul's death Areas of Need There are two areas of needs that arise in the event of a death: Immediate cash needs, and income to support Sally and the children Immediate Needs This generally includes funds that are required immediately to establish an emergency reserve fund, pay for final expenses, and repay outstanding debts. You would like to provide for the education of the children. The total amount required for these needs is $348,696. You currently have assets and life insurance in the amount of $230,000. Income Needs Income needs change over time. This analysis assumes that income needs will be: $9,438 or 75.00% of today's total income until the children reach age 18. $8,808 or 70.00% of today's total income after the children reach age 18. $7,550 or 60.00% of today's total income during retirement. Results According to the analysis, your immediate needs cannot be satisfied with your total projected assets. It is recommended that you review your options for increasing your total assets or reducing your needs. All assets will be depleted by Sally 's age 37. In order to provide for all needs today, you would need an additional amount of $1,167,450 today. Values shown in this presentation are hypothetical and not a promise of future performance. 0_cuna.User1_ba66e20a-fce3-4d88-9cf9-a67ef18325e3_633765895629561723 Page 7 of 17
In the event of Paul's death Survivor s Immediate Needs Emergency Reserves Everyone should maintain an emergency reserve fund. This is usually in the form of assets that can be quickly converted to cash. Establishing or maintaining this fund is considered an important step when evaluating funding needs in the event of death. Capital Needed Immediately Emergency reserves $37,750 Final expenses 5,000 College fund 125,946 Debt repayment Mortgage $150,000 Other debts 30,000 Total debt repayment 180,000 Total immediate capital need 348,696 Capital Available Cash 15,000 Life insurance proceeds 50,000 Existing college funds 0 Total liquid capital 65,000 Amount needed from other assets 283,696 Other available assets 165,000 Additional assets required for immediate needs 118,696 Assets available to support income needs $0 Your assets will not be sufficient to cover your immediate needs. Values shown in this presentation are hypothetical and not a promise of future performance. 0_cuna.User1_ba66e20a-fce3-4d88-9cf9-a67ef18325e3_633765895629561723 Page 8 of 17
Survivor Needs Timeline Assumptions: Analysis Results: Deceased Individual: Paul Total of Annual Shortfalls: $9,099,793 Surviving Individual: Sally Additional Capital Required: $1,048,754 Rate of Return: 6.00% Rate of Inflation: 4.00% Age Need Earned Income Social Security Sources Other Income Earnings from Assets Asset Balance Annual Shortfall Beg. Balance $0 37 $113,250 $73,000 $39,033 $0 $0 $0 $1,217 38 117,780 75,920 40,985 0 0 0 875 39 122,491 78,957 43,034 0 0 0 501 40 127,391 82,115 45,186 0 0 0 90 41 132,486 85,400 47,445 0 0 0 0 42 137,786 88,816 49,817 0 0 0 0 43 143,297 92,368 52,308 0 0 0 0 44 149,029 96,063 54,923 0 2 941 0 45 154,990 99,906 57,670 0 144 3,669 0 46 161,190 103,902 60,553 0 334 7,268 0 47 167,638 108,058 63,581 0 581 11,849 0 48 174,343 112,380 33,380 0 0 0 16,734 49 181,317 116,875 35,049 0 0 0 29,393 50 175,998 121,550 0 0 0 0 54,448 51 183,038 126,412 0 0 0 0 56,626 52 190,360 131,469 0 0 0 0 58,891 53 197,974 136,728 0 0 0 0 61,246 54 205,893 142,197 0 0 0 0 63,696 55 214,129 147,885 0 0 0 0 66,244 56 222,694 153,800 0 0 0 0 68,894 57 231,602 159,952 0 0 0 0 71,650 58 240,866 166,350 0 0 0 0 74,516 59 250,500 173,004 0 0 0 0 77,496 60 260,520 179,924 0 0 0 0 80,596 61 270,941 187,121 0 0 0 0 83,820 62 281,779 194,606 0 0 0 0 87,173 63 293,050 202,390 0 0 0 0 90,660 64 304,772 210,486 0 0 0 0 94,286 65 271,683 0 0 0 0 0 271,683 66 282,550 0 0 0 0 0 282,550 67 293,852 0 80,948 0 0 0 212,904 68 305,606 0 84,996 0 0 0 220,610 69 317,830 0 89,245 0 0 0 228,585 70 330,543 0 93,708 0 0 0 236,836 71 343,765 0 98,393 0 0 0 245,372 Values shown in this presentation are hypothetical and not a promise of future performance. 0_cuna.User1_ba66e20a-fce3-4d88-9cf9-a67ef18325e3_633765895629561723 Page 9 of 17
Survivor Needs Timeline Age Need Earned Income Social Security Sources Other Income Earnings from Assets Asset Balance Annual Shortfall 72 $357,516 $0 $103,313 $0 $0 $0 $254,203 73 371,816 0 108,478 0 0 0 263,338 74 386,689 0 113,902 0 0 0 272,787 75 402,156 0 119,597 0 0 0 282,559 76 418,243 0 125,577 0 0 0 292,665 77 434,972 0 131,856 0 0 0 303,116 78 452,371 0 138,449 0 0 0 313,922 79 470,466 0 145,371 0 0 0 325,095 80 489,285 0 152,640 0 0 0 336,645 81 508,856 0 160,272 0 0 0 348,584 82 529,211 0 168,286 0 0 0 360,925 83 550,379 0 176,700 0 0 0 373,679 84 572,394 0 185,535 0 0 0 386,859 85 595,290 0 194,812 0 0 0 400,478 86 619,101 0 204,552 0 0 0 414,549 87 643,866 0 214,780 0 0 0 429,086 88 669,620 0 225,519 0 0 0 444,101 89 696,405 0 236,795 0 0 0 459,610 Values shown in this presentation are hypothetical and not a promise of future performance. 0_cuna.User1_ba66e20a-fce3-4d88-9cf9-a67ef18325e3_633765895629561723 Page 10 of 17
Term Life Insurance What Is Term Life Insurance? Term life insurance, as the name suggests, provides life insurance only for a limited period of time, or term. Other types of policies, such as whole life, universal life, or variable life, are considered to be permanent insurance, and are designed to provide protection for the entire life of the insured. Term insurance might be compared to an automobile insurance policy. While the auto policy is in force, the insured enjoys protection against loss from an auto accident. If no accident happens, no benefits are paid under the policy. At the end of the period covered by the policy, there is no refund of premiums paid. Term life insurance works in much the same way. Term insurance thus provides only pure insurance protection and does not have the cash value feature typically found in most permanent life insurance policies. Unlike most permanent policies, in which premiums usually remain level over the life of the policy, the periodic cost of term life insurance increases as the insured becomes older. The cashvalue feature found in permanent policies provides a cash build-up within the policy which allows for the level periodic premium. In later years, the premiums for a typical term life policy will far exceed those of the typical permanent policy. Policy Variations There are a number of different types of term insurance: Annual renewable term: Term insurance characterized by a level death benefit, a premium that increases at each annual policy renewal, and no cash-value accumulation. Example of Annual Renewable Term $ Time Annual Premium Death Benefit 0_cuna.User1_ba66e20a-fce3-4d88-9cf9-a67ef18325e3_633765895629561723 A094S Page 11 of 17
Term Life Insurance Long-term level premium term: The annual premiums are fixed for a specified period of time, typically 5, 10, 15, or 20 years. The death benefit remains constant, and there are no accumulated cash values. Example of Long-Term Level Term $ Time Annual Premium Death Benefit Decreasing term: A policy that has a level premium, a decreasing death benefit, and no accumulation of cash values. Combination policies: In some cases, term life insurance is teamed with a permanent policy to provide the benefits of both types of policies. In both the family income policy, and the family maintenance policy, for example, a term policy with a decreasing death benefit is combined with a permanent, level benefit policy. Common Uses of Term Insurance Term life insurance is most useful when an insured is relatively young and the need is for temporary or short-term coverage. Some common use of term insurance include: Family protection: To provide the funds to support a surviving spouse and/or minor children or to provide the cash for a child s college education or pay for other capital needs; to pay final bills such as medical or other estate expenses. Declining needs: In some instances, a debt, such as a mortgage, is matched with a decreasing term policy. As the debt is paid off, the policy s death benefit is reduced. Business planning: A business may use term insurance to insure a key employee, or to recruit or retain key employees through a salary continuation plan. Term insurance is also useful as a way to fund a cross-purchase buy-sell agreement, particularly where one owner is significantly younger than another. Charitable gifts: To provide funds for a gift to charity. 0_cuna.User1_ba66e20a-fce3-4d88-9cf9-a67ef18325e3_633765895629561723 A094S Page 12 of 17
Term Life Insurance Optional Policy Provisions A number of optional policy provisions, commonly referred to as riders, can be added to a basic term life policy, generally through payment of an additional premium: Renewable: This provision allows the policy to be renewed at the end of the term without the insured having to show that he or she is still insurable. Convertible: Provides the insured the option to convert a term policy to a permanent policy, usually without having to prove good health. Accidental death: Pays the beneficiaries double (in some situations triple) the face amount of the policy if the insured dies in an accident. Waiver of premium: Waives the payment of policy premiums if the insured becomes disabled and unable to work. Accelerated death benefits: An accelerated death benefits provision allows for payment of part of a policy s death benefit while an insured is still alive. Such benefits are typically payable when the insured develops a medical condition expected to lead to death within a short period of time. 0_cuna.User1_ba66e20a-fce3-4d88-9cf9-a67ef18325e3_633765895629561723 A094S Page 13 of 17
Universal Life Insurance What Is Universal Life Insurance? Universal life insurance contracts differ from traditional whole life policies by specifically separating and identifying the mortality, expense, and cash value parts of a policy. Dividing the policy into these three components allows the insurance company to build a higher degree of flexibility into the contract. This flexibility allows (within certain limits) the policy owner to modify the policy face amount or premium, in response to changing needs and circumstances. A monthly charge for both the mortality element and the expense element is deducted from a policy s account balance. The remainder of the premium is allocated to the cash value element, where the funds earn interest. Unlike traditional whole life policies, complete disclosure of these internal charges against the cash value element is made to the policy owner in the form of an annual statement. Many universal life policies have several different provisions by which the accumulated cash value can be made available to a policy owner during life, without causing the policy to lapse. If a policy is terminated without the insured dying, there are various surrender options for the cash value. Policy Variations There are two primary types of universal life, based on the level of death benefits: Type I universal life: Also known as option A, type I universal policies pay a fixed, level death benefit, generally the face amount of the policy. Example of Type I Universal Life $ Time Annual Premium Death Benefit Cash Value 0_cuna.User1_ba66e20a-fce3-4d88-9cf9-a67ef18325e3_633765895629561723 A090S Page 14 of 17
Universal Life Insurance Type II universal life: Also known as option B, type II universal policies generally pay the face amount of the policy plus the accumulated cash values. As the cash values grow, so does the potential death benefit. Example of Type II Universal Life $ Time Annual Premium Death Benefit Cash Value Common Uses of Universal Life Universal life policies are useful for policy owners who expect their needs to change over time. Within certain guidelines, a universal life policy can be modified by changing the death benefit or premium payments. Some common uses are: Family protection: To provide the funds to support a surviving spouse and/or minor children, or to pay final bills such as medical or other estate expenses, as well as federal 1 and state death taxes. Business planning: Because of its flexibility, universal life insurance is often used for many different business purposes, such as insuring key employees, in split-dollar insurance arrangements, and funding nonqualified deferred compensation plans. Business continuation planning often involves using universal life as a source of funds for buy-sell agreements. Accumulation needs: Some individuals will use the cash value feature of universal life as means of accumulating funds for specific purposes, such as funding college education, or as a supplemental source of retirement income. Charitable gifts: To provide funds for a gift to charity. 1 Under the Tax Act of 2001, the federal estate tax is gradually phased out until its final repeal in the year 2010. If Congress does not act at that time to repeal it for the years following, it will automatically revert back to the rates in effect during the year 2001, with an exemption for the first $1,000,000 of assets. 0_cuna.User1_ba66e20a-fce3-4d88-9cf9-a67ef18325e3_633765895629561723 A090S Page 15 of 17
Universal Life Insurance Modified Endowment Contracts (MECs) A life insurance policy issued on or after June 21, 1988 1 may be classified as a modified endowment contract (MEC) if the cumulative premiums paid during the first seven years (7-pay test) at any time exceed the total of the net level premiums for the same period. If a policy is classified as a MEC, all withdrawals (including loans) will be taxed as current income, until all of the policy earnings have been taxed. There is an additional 10% penalty tax if the owner is under age 59½ at the time of withdrawal, unless the payments are due to disability or are annuity type payments. A universal life policy can avoid treatment as a MEC through a well-designed premium payment schedule. Caution must be exercised when changes in policy premium payments or death benefits are made, or when making partial withdrawals, to avoid having the policy inadvertently classified as a MEC. Additional Policy Elements Universal life policies have a number of additional elements to consider: Surrender charges: Most universal life policies have substantial surrender charges, if a policy is terminated. These surrender charges are generally highest in the early years of a policy, and decline over a period of time, usually from seven to 15 years. Policy loans: Universal life policies typically permit the policy owner to borrow at interest a portion of the accumulated cash value. The rate charged on the borrowed funds is often lower than current open market rates. A policy loan will reduce the death benefit payable if the insured dies before the loan is repaid; a policy loan will also reduce the cash surrender value if a policy is terminated. If the policy lapses or is surrendered with a loan outstanding, the loan will be treated as taxable income in the current year, to the extent of gain in the policy. Partial withdrawals: Most universal life policies allow a policy owner to withdraw a portion of the cash value, without terminating the policy. Such withdrawals reduce the amount of death benefit payable, and may be subject to current income tax, if the policy is classified as a MEC, or if the withdrawal exceeds cost basis for a non-mec policy. Some contracts allow a policy owner to put the withdrawn funds back into the policy, but the insured may have to provide evidence of insurability to restore the original death benefit. Surrender options: If a policy owner surrenders a policy, there are generally three ways in which the accumulated cash value may be received, including: (1) taking the accumulated cash value, less any surrender charges; (2) receiving a reduced amount of paid-up insurance; or (3) taking paid-up term insurance in an amount equal to the original face amount of the policy. 1 Including a policy issued before that date, but later materially changed. 0_cuna.User1_ba66e20a-fce3-4d88-9cf9-a67ef18325e3_633765895629561723 A090S Page 16 of 17
Universal Life Insurance Optional Policy Provisions A number of optional provisions, commonly referred to as riders, can be added to a basic universal life policy, generally through payment of an additional premium: Waiver of premium: Suspends the monthly deduction for the mortality element of the policy, if the insured becomes disabled and is unable to work. Accidental death: Pays the beneficiaries double (in some situations triple) the face amount of the policy if the insured dies in an accident. Spousal or family term insurance: Allows a policy owner to purchase term insurance on a spouse or children. Accelerated death benefits: An accelerated death benefits provision allows for payment of part of a policy s death benefit while an insured is still alive. Such benefits are typically payable when the insured develops a medical condition expected to lead to death within a short period of time. 0_cuna.User1_ba66e20a-fce3-4d88-9cf9-a67ef18325e3_633765895629561723 A090S Page 17 of 17