Client Guide PACIFIC INDEXED ACCUMULATOR 5 Indexed Universal Life Insurance FAMILY BUSINESS RETIREMENT ESTATE Pacific Life Insurance Company 16-3A
THE FLEXIBILITY OF CASH VALUE LIFE INSURANCE 02 FINANCIAL PROTECTION A policy s proceeds are paid to policy beneficiaries when the insured dies. FINANCIAL POTENTIAL A policy s cash value has the potential to grow, less policy charges. FINANCIAL FEATURES A policy s optional features are available for additional life insurance and financial needs.
BUSINESS PROTECT THE BOTTOM LINE Your business is your legacy. It s also your livelihood. Good decisions, smart money management, and herculean effort have helped you succeed. You are wise to surround yourself with top talent. They help your business excel. Their expertise counts. What if they leave? What if they join the competition? Incentivize your key executives with the opportunity to protect their families, their futures, and your company s bottom line. Pacific Indexed Accumulator 5 is an indexed universal life insurance product from Pacific Life Insurance Company. It can help provide your key executives with financial protection for their families through policy proceeds if the executives die too soon. Along with financial protection, your key executives can also build cash value potential to help supplement their retirement income. Policy form #P15IUL, S15PIA5 or ICC15 P15IUL, ICC15 S15PAI5, based on state of policy issue. 03
Premiums, Charges, and Current Rates POLICY PREMIUMS: Premiums are flexible. Policyowners choose the payment amount and timing. As long as the policy s cash value is sufficient to pay ongoing policy charges, the policy will stay in force. Indexed universal life insurance generally requires additional premiums after the initial payment. If either no premiums are paid or subsequent premiums are insufficient to continue coverage, it is possible the coverage will expire. POLICY CHARGES: The cost of insurance and benefits provided through the policy is deducted monthly in the form of policy charges, which include an Administrative Charge, Coverage Charge, Cost of Insurance Charge, and any applicable rider charges. Additionally, a premium load is deducted from each premium payment. To understand how policy charges affect the policy s cash value, request a personalized illustration that includes an Analysis of Charges. Policy charges will reduce the policy s effective rate of return. POLICY SURRENDER CHARGES: If the policy is surrendered within the first 10 policy years, a surrender charge will apply. A surrender charge will reduce the policy s cash value payable at policy surrender. POLICY FACE AMOUNT CHANGES: The face amount may be increased or decreased, subject to restrictions, which may impact policy charges and surrender charges. NON-GUARANTEED ELEMENTS: Non-guaranteed/ current elements are not guaranteed by definition. As such, Pacific Life Insurance Company reserves the right to change or modify any of these elements. This right to change these elements is not limited to a specific time or reason. 04
BUSINESS BENEFIT YOUR EXECUTIVES When you run a successful business, every dollar counts. When you need to incentivize key executives, it has to make sense to your company s bottom line. Pacific Indexed Accumulator 5 is designed to offer high cash surrender values in the policy s early years. Because the cash value may be counted as an asset, your business can leverage it to help offset the cost of offering life insurance coverage to your executives. It can be a smart way to reward top talent in a cost-efficient manner. 05
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BUSINESS BUSINESS PLANNING STRATEGIES COVER KEY EXECUTIVES + GAIN BUSINESS ASSETS If your business loses a key executive, it may suffer financially. Reward top talent using an endorsement split dollar arrangement to buy cash value life insurance on key executives. As policyowner, your business pays the premiums and generally retains access to the cash value as an asset. Split dollar arrangements may be affected by the Sarbanes-Oxley Act of 2002, which prohibits personal loans by public companies to directors and executive officers. IRS regulations may impact the taxation. OFFER RETIREMENT PLAN + OFFSET PLAN COSTS For highly compensated executives, contribution limits on qualified plans and Social Security benefits may mean retirement income shortfalls. Offer executives supplemental retirement income potential using cash value life insurance in a nonqualified deferred compensation plan. The policy s cash value can help informally fund the plan. As policyowner and beneficiary, your business may use the policy s proceeds when the insured executive dies to help offset the cost of the plan. Executives should be members of a select group of management or highly compensated employees per Department of Labor Reg. Sec. 2520.104-23. INCENTIVIZE EXECUTIVES + ADD A TAX DEDUCTION In today s competitive climate, how can your business stand out? Offer bonuses to your executives in the form of premiums for cash value life insurance the executive may own. The premiums are generally tax deductible as a business expense. The deductibility of the bonuses is subject to the reasonable compensation limits established by IRC Sec. 162(a). Your employee benefits legal counsel can tell you whether this is an employee benefit plan under the Employee Retirement Income Act of 1974 and, if so, whether any additional requirements are necessary. 07
BUSINESS OWNER STRATEGIES EXPAND YOUR BUSINESS Along with incentivizing key employees, Pacific Indexed Accumulator 5 may be used for other business considerations. While the primary purpose for buying life insurance is to pay policy proceeds to the policy beneficiaries at the insured s death, your policy also has the potential to accumulate cash value. You may use your available cash value to expand your business. Purchase a new building. Buy a more optimal piece of land. Upgrade your technology platform. Refurbish your equipment. Your cash value is yours to use however you want. OPTIMIZE YOUR ASSETS As a business owner, you most likely review your assets periodically. The same goes for your life insurance coverage. If you own multiple policies or are simply exchanging one cash value policy for another, consider optimizing and/or consolidating your coverage. Pacific Indexed Accumulator 5 offers the potential for higher early cash values, so you might retain more of the cash value you ve built up from an existing policy. There are circumstances in which replacing your existing life insurance can benefit you. As a general rule, however, replacement is not in your best interest. Your life insurance producer can provide you with detailed information as to how a replacement may affect your plan of insurance. You should make a careful comparison of the costs and benefits, including any applicable surrender charges, of your existing policy and the proposed policy to determine whether replacement is in your best interest. 08
BUSINESS DIVERSIFY YOUR TAX LIABILITIES If you re a business owner with an eye toward retirement, your financial portfolio is probably well diversified across assets. But are your tax liabilities? Consider the tax treatment of your assets at distribution. Failure to diversify tax liabilities at retirement can chip away your net retirement income. to, any reduction in benefits; and (4) the policy does not become a modified endowment contract. See IRC Secs. 72, 7702(f)(7)(B), 7702A. Any policy withdrawals, loans and loan interest will reduce policy values and may reduce benefits. With its tax-deferred growth potential and tax-free distribution potential through policy loans and withdrawals from the available cash value, a Pacific Indexed Accumulator 5 policy can help provide a taxadvantaged source of supplemental retirement income. For federal income tax purposes, tax-free income assumes, among other things: (1) withdrawals do not exceed tax basis (generally, premiums paid less prior withdrawals); (2) policy remains in force until death; (3) withdrawals taken during the first 15 policy years do not occur at the time of, or during the two years prior 09
Zero Floats What goes up must come down. Or does it? Indexed universal life insurance is a form of cash value life insurance. What makes it different is the way it credits interest to your policy s cash value if you allocate among the indexed accounts. Imagine the interest rate your policy credits as a buoy riding along the waves of stock market movements. Your policy s buoy is anchored, meaning it can only float up to a certain point. This maximum is called the growth cap and it limits your interest crediting rate on the upside. Your interest rate is guaranteed to be no less than 0%. If the market drops, your cash value stays where it was, reduced only by policy charges and any distributions you take, such as withdrawals and policy loans. With 0% guaranteed, your policy s cash value is protected against market-based losses. Indexed accounts do not directly participate in any stock or equity investments, but they do credit an interest rate based in part on the movements of stock market indexes. 10
BUSINESS THE POTENTIAL TO GROW The cash value of a Pacific Indexed Accumulator 5 life insurance policy has the potential to accumulate and grow. Each premium you pay, less a premium load, is applied to the policy s fixed account, where it will earn a current interest rate, less monthly policy charges. You may transfer your policy s accumulated value from the fixed account to any combination of available indexed accounts on the 15 th of each month. Each transfer into an indexed account creates a unit of value called a segment. Any applicable interest is credited at the end of each segment s term, based in part on the performance of a major stock market index, excluding dividends. Talk to your life insurance producer about your financial goals and the accounts that might match your and your business current and long-term needs. 11
Tax Considerations: POLICY PROCEEDS: For federal income tax purposes, life insurance death benefits generally pay income tax-free to beneficiaries pursuant to IRC Section 101(a)(1) In certain situations, however, life insurance death benefits may be partially or wholly taxable. Situations include, but are not limited to: the transfer of a life insurance policy for valuable consideration unless the transfer qualifies for an exception under IRC Section 101(a)(2) (i.e. the transferfor-value rule ); arrangements that lack an insurable interest based on state law; and an employer-owned policy unless the policy qualifies for an exception under IRC Section 101(j). POLICY LOANS AND WITHDRAWALS: For federal income tax purposes, tax-free income assumes, among other things: (1) withdrawals do not exceed tax basis (generally, premiums paid less prior withdrawals); (2) policy remains in force until death; (3) withdrawals taken during the first 15 policy years do not occur at the time of, or during the two years prior to, any reduction in benefits; and (4) the policy does not become a modified endowment contract. See IRC Sections 72, 7702(f)(7)(B), 7702A. Any policy withdrawals, loans, and loan interest will reduce policy values and may reduce benefits. 12
BUSINESS POLICY PROCEEDS Your policy s proceeds are paid tax-free to your policy beneficiaries when you die. Along with replacing your income, the proceeds might be used to pay off the family home, satisfy debts, provide for business succession planning, and/or help ensure efficient estate transfer. You have three choices for your policy s payout structure: A Level Death benefit equals the policy s face amount. B Increasing Death benefit equals the policy s face amount, plus the policy s accumulated cash value. C Return of Premium Death benefit equals the policy s face amount plus the sum of premiums paid, less any withdrawals. How you structure your policy will affect its charges and surrender charges, so work with your life insurance producer to build the coverage that meets your needs or that of your business. Accessing the Cash Value Any available cash value accumulated in a Pacific Indexed Accumulator 5 policy may be accessed through policy loans and withdrawals tax-free. 13
Financial Features Your policy offers optional features called riders for additional life insurance and financial needs. Riders help expand the flexibility and protection of your policy. Some riders are automatically included with eligible policies. Other riders must be elected at policy issue for additional costs. Ask your life insurance producer to provide you with more details on the financial features available to you through riders. Riders will likely incur additional charges and are subject to availability, restrictions and limitations. When considering a rider, request a policy illustration from your life insurance producer to see the rider s impact on your policy s values. 14
BUSINESS PACIFIC LIFE THE POWER TO HELP YOU SUCCEED When it comes to choosing the company you will trust with the purchase of your life insurance policy, consider their treatment of the policyowners who have purchased before you. Pacific Life has a history of passing along savings to our policyowners in the form of over 120 pricing improvements to our inforce policies since 1985. When you buy a policy from Pacific Life, you become a voting member in our mutual holding company structure. We make decisions that benefit you and the long-term financial strength of the company. You matter to us. Buying life insurance is a long-term commitment. The company you choose matters. 15
This material is not intended to be used, nor can it be used by any taxpayer, for the purpose of avoiding U.S. federal, state or local tax penalties. This material is written to support the promotion or marketing of the transaction(s) or matter(s) addressed by this material. Pacific Life, its affiliates, their distributors and respective representatives do not provide tax, accounting or legal advice. Any taxpayer should seek advice based on the taxpayer s particular circumstances from an independent tax advisor or attorney. Pacific Life is a product provider. It is not a fiduciary and therefore does not give advice or make recommendations regarding insurance or investment products. Only a life insurance producer who is also a fiduciary is required to advise if the product purchase and any subsequent action taken with regard to the product are in their client s best interest. Pacific Life Insurance Company Newport Beach, CA (800) 800-7681 www.pacificlife.com Pacific Life Insurance Company is licensed to issue insurance products in all states except New York. Product availability and features may vary by state. Insurance products and their guarantees, including optional benefits and any crediting rates, are backed by the financial strength and claims-paying ability of the issuing insurance company. Look to the strength of the life insurance company with regard to such guarantees as these guarantees are not backed by the broker-dealer, insurance agency, or their affiliates from which products are purchased. Neither these entities nor their representatives make any representation or assurance regarding the claims-paying ability of the life insurance company. Pacific Life Insurance Company s individual life insurance products are marketed exclusively through independent third-party life insurance producers, which may include bank affiliated entities. Some selling entities may limit availability of some optional riders based on their client s age and other factors. Your broker-dealer or firm can help you determine which optional riders and investment options are available and appropriate for your clients. Investment and Insurance Products: Not a Deposit Not Insured by any Federal Government Agency Not FDIC Insured No Bank Guarantee May Lose Value 16-3A 15-44237-01 5/16