How to sell executive benefits Part 7: Product considerations At the Voya Life Companies, executive benefits refers to supplemental retirement benefits that employers can make available to their most valued employees and executives. Nonqualified retirement benefits are benefits that are offered to supplement what employers are allowed to offer as qualified retirement benefits (i.e., 401(k) plans, profit-sharing plans, qualified pension plans, etc.). The purpose of offering these benefits is to help employers recruit, retain, and reward the talented executives needed to make their businesses a success. Why use life insurance? For Bonus arrangements and Split Dollar plans, the answer lies in the basic plan design. Bonus arrangements (including Restricted Executive Bonus Arrangements (REBAs) and Business Owner s Bonus Plans) take advantage of cash value life insurance policies potential to grow tax deferred and potential for tax-free distributions.* Split Dollar Loans take advantage of specialized tax treatment under the final split dollar regulations that applies only to arrangements involving life insurance. However, the issue is more complicated for 401(k) Look-Alike Plans, SERPs, and Deferred Compensation plans since these arrangements cannot be formally funded. In order to comply with the requirements of 409A and ERISA, employers implementing such arrangements must hold any funding assets as part of the employer s general assets. This means that the employer will be responsible for any income taxes associated with the funding assets. While employers are not required to purchase or set aside any assets to provide for promised benefits, most corporations find it prudent to informally fund plans as benefits accrue to minimize the impact on their balance sheet. The questions for the employer are what type of asset to use for this purpose. Life insurance offers employers several unique features which are beneficial for informal funding. When the plan includes a death benefit, life insurance offers the ability to have this obligation fully funded from the instant the plan is implemented by matching the policy s death benefit to the benefit promised under the plan; life insurance may be self-completing. When the plan provides for disability benefits, premium waiver riders can be added to the policy. When the plan promises the employee retirement income, life insurance cash values offer the employer a source of funds to pay the benefit which the employer can generally access on a tax-free basis.* *Policy loans and partial withdrawals may vary by state, reduce available surrender value and death benefit or cause the policy to lapse. Generally, policy loans and partial withdrawals will not be income taxable if there is a withdrawal to the cost basis (usually premiums paid), followed by policy loans (but only if the policy qualifies as life insurance, is not a modified endowment contract and is not lapsed or surrendered).
Cash value life insurance account values have the potential to accumulate income tax deferred and may offer minimum guarantees which are based on the financial strength and claims paying ability of the issuing company, who is solely responsible for all obligations under its policies. Cash value life insurance policies may produce an attractive internal rate of return (IRR) exceeding the company s cost of funds; if the company holds the policy until death, death benefits may offer an even higher IRR. An income tax-free death benefit* can be used by the employer to recover some or all of the costs associated with the arrangement. This is the fourth R in executive benefits Recruit, Retain, Reward, Recovery. *Proceeds from an insurance policy are generally income tax free and if properly structured, may also be free from estate taxes. IRC 101(j) provides that death benefits from an employer-owned life insurance policy are income taxable in excess of premiums paid, unless an exception applies and certain notice and consent requirements are met before the policy is issued. Please consult your tax or legal advisors for more information. Which is the right life insurance product? Of course, this is the million-dollar question. And the answer is, It depends. What does it depend upon? It depends on what the client is trying to accomplish. While the Voya Life Companies do have a specific product dedicated to executive benefits, Voya Corporate Variable Universal Life (Voya Corporate VUL), issued by Security Life of Denver Insurance Company, a member of the Voya family of companies, we are able to use many different products in executive benefits. Products ranging from Universal Life to Variable Universal Life are available to our executive benefits clients. Please see the back of this material for important disclosures regarding the issuing insurance companies offering the following products. Some general thoughts: Universal Life Provides a minimum guaranteed credited interest rate while offering some upside potential. While the current rate may fluctuate, UL policies tend to be fairly predictable and stable. Voya Universal Life-CV (Voya UL-CV) is a life insurance product that offers valuable death benefit protection, as well as the potential for cash values to grow tax deferred that you can generally access through policy loans and withdrawals. Income tax-free distributions are achieved by withdrawing to the cost basis (usually premiums paid) then using policy loans. Loans and withdrawals may generate an income tax liability, reduce available cash value and reduce the death benefit or cause the policy to lapse. This assumes the policy qualifies as life insurance and is not a modified endowment contract and is not lapsed or surrendered. Voya Universal Life-ECV (Voya UL-ECV) is designed to potentially create strong surrender value early in the life of the policy. This can amount to as much as 91% or more in surrender value in the first year as a percentage of premiums paid on a current basis. Access to this surrender value gives your clients an opportunity to meet a variety of personal and business needs.
Indexed Universal Life Indexed universal life insurance is virtually the same as more traditional universal life insurance with one very important difference: the crediting rate is linked in part to increases, if any, in a designated market index (or indices), meaning changes in a market index are taken into account as part of the formula that determines the amount credited to the policy. Voya Indexed Universal Life-Global Choice (Voya IUL-Global Choice) offers traditional universal life benefits with either a fixed crediting strategy or an indexed strategy where the crediting rate is based upon a portion of the increases, if any, in the S&P 500 Index, the EURO STOXX 50 Index, and the Hang Seng Index (subject to an Index Cap and Participation Rate depending on the strategy(ies) selected by the policy owner) with protection from downside risk with the indexed strategies 0% guaranteed minimum interest rate. Voya IUL-Global Choice can be used to potentially help businesses: Manage cash flow problems. Expand their business into a new building or buy new equipment. Provide extra retirement benefits to a valued employee. Buy out an older partner. The S&P 500 Index is a product of S&P Dow Jones Indices LLC ( SPDJI ), and has been licensed for use by Security Life of Denver 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 Security Life of Denver Insurance Company. Security Life of Denver Insurance Company s Indexed Universal Life Insurance products are 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 product(s) nor do they have any liability for any errors, omissions, or interruptions of the S&P 500 Index. EURO STOXX 50 Index An Index of blue-chip stocks that are represented by 50 stocks covering the largest sector leaders in the EURO STOXX 50 Index. It does not reflect dividends payable on the underlying stocks. STOXX Limited, Zurich, Switzerland and its licensors (the Licensors ) have norelationship to Security Life of Denver Insurance Company ( Security Life ), other than the licensing of the EURO STOXX 50 Index and the related trademarks for use in connection with the Voya Indexed Universal Life Global Choice ( Voya IUL-Global Choice ) insurance policy. STOXX and its Licensors do not: (1) Sponsor, endorse, sell or promote the Voya IULGlobal Choice policy; (2) Recommend that any person invest in the Voya IUL-Global Choice policy or any securities; (3) Have any responsibility or liability for or make any decisions about the timing, amount or pricing of the Voya IUL-Global Choice policy; (4) Have any responsibility or liability for the administration, management or marketing of the Voya IULGlobal Choice policy; or (5) Consider the needs of the Voya IUL-Global Choice policy or the owners of the Voya IUL-Global Choice policy in determining, composing or calculating the EURO STOXX 50 Index or have any obligation to do so. The Hang Seng Index (the Index ) is published and compiled by Hang Seng Indexes Company Limited pursuant to a license from Hang Seng Data Services Limited. The mark and name Hang Seng Index are proprietary to Hang Seng Data Services Limited. Hang Seng Indexes Company Limited and Hang Seng Data Services Limited have agreed to the use of, and reference to, the Index by Security Life of Denver Insurance Company ( Security Life ) in connection with this Indexed universal life insurance policy (the Policy ), BUT NEITHER HANG SENG INDEXES COMPANY LIMITED NOR HANG SENG DATA SERVICES LIMITED WARRANTS OR REPRESENTS OR GUARANTEES TO ANY BROKER OR HOLDER OF THE POLICY OR ANY OTHER PERSON (i) THE ACCURACY OR COMPLETENESS OF THE INDEX AND ITS COMPUTATION OR ANY INFORMATION RELATED THERETO; OR (ii) THE FITNESS OR SUITABILITY FOR ANY PURPOSE OF THE INDEX OR ANY COMPONENT OR DATA COMPRISED IN IT; OR (iii) THE RESULTS WHICH MAY BE OBTAINED BY ANY PERSON FROM THE USE OF THE INDEX OR ANY COMPONENT OR DATA COMPRISED IN IT FOR ANY PURPOSE, AND NO WARRANTY OR REPRESENTATION OR GUARANTEE OF ANY KIND WHATSOEVER RELATING TO THE INDEX IS GIVEN OR MAY BE IMPLIED. The process and basis of computation and compilation of the Index and any of the related formula or formulae, constituent stocks and factors may at any time be changed or altered by Hang Seng Indexes Company Limited without notice. TO THE EXTENT PERMITTED BY APPLICABLE LAW, NO RESPONSIBILITY OR LIABILITY IS ACCEPTED BY HANG SENG INDEXES COMPANY LIMITED OR HANG SENG DATA SERVICES LIMITED (i) IN RESPECT OF THE USE OF AND/OR REFERENCE TO THE INDEX BY SECURITY LIFE IN CONNECTION WITH THE POLICY; OR (ii) FOR ANY INACCURACIES, OMISSIONS, MISTAKES OR ERRORS OF HANG SENG INDEXES COMPANY LIMITED IN THE COMPUTATION OF THE INDEX; OR (iii) FOR ANY INACCURACIES, OMISSIONS, MISTAKES, ERRORS OR INCOMPLETENESS OF ANY INFORMATION USED IN CONNECTION WITH THE COMPUTATION OF THE INDEX WHICH IS SUPPLIED BY ANY OTHER PERSON; OR (iv) FOR ANY ECONOMIC OR OTHER LOSS WHICH MAY BE DIRECTLY OR INDIRECTLY SUSTAINED BY ANY BROKER OR HOLDER OF THE POLICY OR ANY OTHER PERSON DEALING WITH THE POLICY AS A RESULT OF ANY OF THE AFORESAID, AND NO CLAIMS, ACTIONS OR LEGAL PROCEEDINGS MAY BE BROUGHT AGAINST HANG SENG INDEXES COMPANY LIMITED AND/OR HANG SENG DATA SERVICES LIMITED IN CONNECTION WITH THE POLICY IN ANY MANNER WHATSOEVER BY ANY BROKER, HOLDER OR OTHER PERSON DEALING WITH THE POLICY. Any broker, holder or other person dealing with the Policy does so therefore in full knowledge of this disclaimer and can place no reliance whatsoever on Hang Seng Indexes Company Limited and Hang Seng Data Services Limited. For the avoidance of doubt, this disclaimer does not create any contractual or quasicontractual relationship between any broker, holder or other person and Hang Seng Indexes Company Limited and/or Hang Seng Data Services Limited and must not be construed to have created such relationship.
Variable Universal Life These types of life insurance policies offer valuable death benefit protection as well as an opportunity to take advantage of market gains (but also the risk of market losses) by choosing variable investment options available within the policy. These may be suitable for those plans with a longer investment timeframe. Voya Variable Universal Life-ECV (Voya VUL-ECV) is designed with the potential to build strong surrender value early in the life of the policy sometimes as much as 95% (or more) surrender value in the first year as a percentage of premiums paid while still having the potential to provide solid long-term account value accumulation. Voya Variable Universal Life-CV (Voya VUL-CV) is an individual variable universal life insurance product designed with the potential to provide long-term cash accumulation potential and can be a valuable tool for supplemental retirement income and executive benefits. Voya Corporate Variable Universal Life (Voya Corporate VUL) is designed with the potential to generate strong early cash values in the policy. Plus, the Surrender Value Enhancement feature can boost your client s surrender cash value, which, in turn, could strengthen their company balance sheet. Yet, even structured with an emphasis on strong early cash accumulation, the policy offers sound death benefit protection with a choice of three Death Benefit Options. Finally, many executive plan designs utilize an underwriting product feature known as Simplified Issue (SI) or Guaranteed Issue (GI). Look for more information on these features in a future chapter.
Making it easier The Voya Life Companies have created a platform to help make executive benefits easier for you. To learn more, try any of the following materials: Buy Executive Benefits Producer Guide (#140181) An overview of executive benefits and the different plan designs that can be used to help employers recruit, retain, and reward key employees and executives. Executive Benefits: Recruit, Retain and Reward Your Top Talent Consumer Brochure (#140220) An overview of executive benefits and plan designs that you can give to clients. Executive Benefits Wizard Producer Guide (#139991) A tool that producers can use to help select an executive benefits solution for their clients. Product Overview: Something for Everyone (#131955) A comprehensive list of the current Voya life companies product portfolio including key features, riders and more. To find these as well as additional materials and information, go to the Executive Benefits page on Voya for Professionals, the Executive Benefits microsite at www.voyaexecutivebenefits.com or call Advanced Sales at 866-464-7355, Option 4. These materials are not intended to and cannot be used to avoid tax penalties and they were prepared to support the promotion or marketing of the matters addressed in this document. Each taxpayer should seek advice from an independent tax advisor. The Voya Life Companies and their agents and representatives do not give tax or legal advice. This information is general in nature and not comprehensive, the applicable laws may change and the strategies suggested may not be suitable for everyone. Clients should seek advice from their tax and legal advisors regarding their individual situation. Variable insurance products are offered by prospectus only. To solicit variable insurance products you must maintain a variable insurance license, be appointed with the issuing company and be a registered representative of a broker-dealer that has a current selling agreement with the issuing company. Before investing, your clients should carefully consider their need for life insurance coverage and the charges and expenses of the variable universal life insurance policy. They should also consider the investment objectives, risks, fees, and charges of each underlying variable investment option. This and other information is contained in the prospectuses for the variable universal life insurance policy and the underlying variable investment options. Clients may obtain these prospectuses from you, by calling 877-253-5050, or from Voya.com and should read them carefully before investing. Variable insurance products are subject to investment risk, are not guaranteed and will fluctuate in value. In addition, there is no guarantee that any variable investment option will meet its stated objective. Products and features may not be available in all states. All guarantees are based on the financial strength and claims paying ability of the issuing company, who is solely responsible for obligations under its own policies. Voya Indexed Universal Life-Global Choice, policy form #1186-09/12; Voya Universal Life-ECV, policy form #1176-08/08; Voya Universal Life - CV, policy form #1177; Voya Variable Universal Life ECV, policy form #2518(VUL)-06/08; Voya Variable Universal Life-CV, policy form #2517(VUL)-03/08 and Voya Corporate Variable Universal Life, policy form #2516(VUL)-09/07, are issued by Security Life of Denver Insurance Company (Denver, CO). Variable universal life insurance products are distributed by Voya America Equities, Inc. All are members of the Voya family of companies. 2016 Voya Services Company. All rights reserved. CN1213-29690-0119 152532 12/15/2016 Voya.com