created exclusively for financial professionals partnership program not for consumer use. presented...

CREATED EXCLUSIVELY FOR FINANCIAL PROFESSIONALS

Partnership Program

NOT FOR CONSUMER USE.

PRESENTED BY:Michael E. Martin, CLU, ChFC, CEP, AEP, MSFS

National Director, Life Insurance Partnership Program

The Prudential Partnership Program

Fast Start Academy Overview

Life Insurance in Retirement PlanningUsing PruLife® Custom Premier II (VUL)

0241050-00012-00 Ed.03/2015 Exp. 08/26/2016


A look back in time…

Sources: Tax Foundation, “Federal Individual Income Tax Rates History: Income Years 1913-2012”; Seeking Alpha, “U.S. Dividend, Cap Gains Tax Rate History: Possible Relevance to Future Taxation”; Citizens for Tax Justice, “Top Federal Income Tax Rates Since 1913” as of 2013.

Top Marginal Federal Ordinary Income and Capital Gain Tax Rates from 1913-2013*

2 NOT FOR CONSUMER USE.

*Income tax rates remain unchanged for 2014


Impact of a tax increase…

$7,500 after-tax monthly income needDistributions from a qualified plan:

33% drop innet income

50% increase in withdrawals



___________ ___ __ ______________ Accumulation With Tax Diversification1

1 As it pertains to this strategy, the client must have a valid need for death benefit protection before considering the accumulation features of life insurance.2 Both loans and withdrawals from a permanent life insurance policy may be subject to penalties and fees and, along with any accrued loan interest, will reduce the policy's account value and death benefit. Assuming a policy is not a Modified Endowment Contract (MEC), withdrawals will generally be taxed only to the extent that they exceed the policy owner’s cost basis in the policy and usually loans are free from current federal taxation. A policy loan could result in tax consequences if the policy lapses or is surrendered while a loan is outstanding. Distributions from MECs are subject to federal income tax to the extent of the gain in the policy and taxable distributions are subject to a 10% additional tax prior to age 59 1/2, with certain exceptions.


Qualified Tax-Deferred• Qualified Plans• Pensions• Deductible IRAs

Non-Qualified Taxable• Stocks and Bonds• Mutual Funds• Cash Equivalents

Non-Qualified Tax-Deferred• Annuities• Non-Deductible IRAs

Qualified/Non-Qualified Typically Tax-Free• Roth IRAs/401(k)s

• Qualified• Federal income-tax free

• Municipal Bonds• Federal income-tax free

• Life Insurance1

• Tax-deferred cash value accumulation• Typically federal income-tax-free when

accessed through loans and withdrawals2

• Generally income-tax-free death benefit pursuant to IRC §101(a)

Distributions100% Ordinary Income

DistributionsOrdinary Income to Extent of Gain

Interest/DividendsOrdinary IncomeRealized GainsCapital Gain

DistributionsTax-Advantaged Income


Agenda

• Build it Backwards

• Perception vs. Reality

5 NOT FOR CONSUMER USE.5


Clients Who May Benefit…

High-Income Earner• Married > $183,000 income• Single > $116,000 income• Under age 55 and need death benefit

protection and want to supplement their post retirement income*

• Maximizing contributions to traditional retirement plans

• Additional monthly income to allocate towards savings

• Desire for tax “diversification”


*Withdrawals in the first 15 policy years may have adverse tax consequences. IRC Section 7702(f)(7) (B-C) retests life insurance contract withdrawals and face reductions and may cause adverse income tax consequences. The policy could become a Modified Endowment Contract.


Life Insurance in Retirement Planning

7

Lifelong death benefit protection to meet minimum protection needs*

Tax-deferred cash accumulation potential

Generally tax-free income potential

Hedge against premature DEATH

Hedge against increases in TAXES

Exempt from 3.8% Medicare surtax

Access, use and control pre-59½ and post-70½ policy cash values without IRS penalty

NOT FOR CONSUMER USE.

*Assuming premiums paid and/or policy performance are sufficient.


Build it Backwards

Life insurance policies contain fees and expenses, including cost of insurance, administrative fees, premium loads, surrender charges and other charges or fees that will impact policy values. Variable universal life insurance policies also have additional charges and fund operating expenses. Guarantees are based on the claims paying ability of the issuing company.


Traditional DesignDeath Benefit Protection

Enhanced DesignEnhanced Cash ValueAccumulation Potential

MaximumDeath Benefit

MinimumPremiumPayment

MaximumPremiumPayment

MinimumDeath Benefit

Death Benefit

Death Benefit

Cash Value Cash Value


Build it Backwards

Less: Cash Value

More: Death Benefit

The graphic shown is hypothetical for illustrative and educational purposes only to describe the impact of possible premium and death benefit designs on cash value potential. It does not represent the cost or performance of any specific life insurance product.

How Variable Universal Life generally works:



Build it Backwards

Withdrawals

Policy Loans

Access Via:More: Cash Value

Less: Death Benefit

How Variable Universal Life generally works:

The graphic shown is hypothetical for illustrative and educational purposes only to describe the impact of possible premium and death benefit designs on cash value potential. It does not represent the cost or performance of any specific life insurance product.



Perception vs. Reality

Common characteristics ofhigh income earners:

• Under age 55

• Married > $183,000 income

• Single > $116,000 income

• Pay higher taxes

• Limited additional savings opportunities with qualified plans

• Need life insurance

Common perceptions aboutlife insurance:

• Never going to need it

• Death benefit only

• Expense vs. asset

• Better alternatives

Examples on the following slides are hypothetical and used for illustrative purposes only to describe how the strategies may work. Which strategy works best for clients will depend on their individual facts and circumstances. Actual results will vary. Any representation of life insurance premium or death benefit is purely hypothetical in amount and is not a guarantee of cost or death benefit now or in the future from a specific life insurance policy.



Age Annual Premium

Annual Distributions

Net Cash Value

Net Death Benefit

45 $20,000 0 $9,384 $438,124

54 $20,000 0 $223,486 $645,692

64 $20,000 0 $626,350 $1,047,403

Total $400,000

65 0 $44,603 $611,092 $1,002,878

74 0 $44,603 $426,061 $600,953

84 0 $44,603 $83,807 $123,213

Total $400,000 $892,060

Policy Values

You must provide your client with a personalized illustration, which includes the impact of a 0% investment performance and guaranteed charges when selling a Prudential variable universal life insurance product. The illustration can also be generated based on a return assumption you select. This is not a complete illustration for PruLife Custom Premier II. You must prepare a personalized illustration that will show the impact of guaranteed interest rates and guaranteed charges for your clients when discussing a product’s benefits and features.

Example using PruLife Custom Premier II (VUL)

• 52 underlying investment options

• 13 asset allocation models

• Overloan Protection

6% hypothetical rate of return, non-guaranteed policy charges

Based on a Male, age 45, preferred non-tobacco.




Age Annual Premium


Net Cash Value

Net Death Benefit

45 $20,000 0 -53.08% N/A

54 $20,000 0 2.01% 20.62%

64 $20,000 0 4.10% 8.48%

Total $400,000

65 0 $44,603 4.17% 7.88%

74 0 $44,603 4.39% 5.28%

84 0 $44,603 4.39% 4.51%

Total $400,000 $892,060


Assumptions: Male, age 45, preferred non-tobacco, $20,000 annual premium to age 65, hypothetical 6% gross (5.32% net) rate of return, minimum non-MEC face amount, Option B switch to Option A at last premium, solve for distributions from age 65 through age 84, endow at age 100, non-guaranteed policy charges.

Pre-retirement net death benefit IRR Post-retirement cash value IRR

Example using PruLife Custom Premier II (VUL)

• 52 underlying investment options

• 13 asset allocation models

• Overloan Protection

Internal Rate of Return6% hypothetical rate of return, non-guaranteed policy charges




Age Annual Premium


Net Cash Value

Net Cash Value IRR

Net Death Benefit

Net Death Benefit IRR

45 $20,000 0 $7,051 -64.75% $435,791 N/A

54 $20,000 0 $137,277 -6.98% $559,483 18.14%

64 $20,000 0 $239,267 -5.20% $660,320 4.56%

Total $400,000

65 0 $44,603 $184,190 -5.22% $615,717 4.22%

66 0 $44,603 $128,945 -5.36% $571,114 3.95%

67 0 $44,603 $73,464 -5.66% $526,511 3.73%

69 0 0 0 N/A 0 N/A

0% hypothetical gross rate of return (-1.03% net), maximum policy charges

You must provide your client with a personalized illustration, which includes the impact of a 0% investment performance and guaranteed charges when selling a Prudential variable universal life insurance product. The illustration can also be generated based on a return assumption you select. This is not a complete illustration for PruLife Custom Premier II. You must prepare a personalized illustration that will show the impact of guaranteed interest rates and guaranteed charges for your clients when discussing a product’s benefits and features.




Hypothetical grossannual rate of return 6.00%

Policy and investment options expenses

Included in net IRR

Cash Surrender Valuenet IRR at age 84 4.39%

Net Death Benefitnet IRR at age 84* 4.51%

Expense vs. Asset?

Total premiums paid ages by age 65 $400,000

Total distributions ages 65 to 84 $892,060

Net death benefitto age 84 $123,213

Total benefits assuming death at age 84

$1,015,273

Cost-Benefit Analysis:

Lifetime death benefit protection

Tax-deferred and potentially income tax-free

Liquidity, use and control prior to age 59½ and beyond 70½

*The IRR on the net death benefit takes into account any prior distributions.



Summary

Build it Backwards

• Maximum premium, minimum death benefit to meet protection needs


• Protection PLUS attractive accumulation and distribution potential



Why Life Insurance in Retirement Planning?

High Income Earners are in your existing book

• Save time and energy!

Meet the needs of your clients

• Retain them for life!

Easily grow your business

• Life Insurance in Retirement Planning

Support and Resources

• Point-of-sale, advanced markets, marketing materials, LIRP Supplemental Illustration



• Individual meeting

• Identify prospects

• Build and present case

Next Steps

High Income Earner Profile Married > $183,000 income

Single > $116,000 income

Under age 55 and need death benefit protection

Maximizing contributions to traditional retirement plans

Additional monthly income to allocate towards savings

Desire for tax “diversification”



Important Considerations

• If premiums and/or performance are insufficient over time, the policy could lapse which would require additional out of pocket premiums to keep it in force.

• If your client’s financial situation changes and they need to forego making premium payments to focus on paying other expenses, their life insurance death benefit may terminate and the results illustrated may not be achieved. Loans taken will become taxable upon policy surrender or lapse.

• The accuracy of determining future needs and expenses is more critical for clients at older ages who have less opportunity to replace assets used for the strategy.

• Your client should consider developing a comprehensive financial plan to take into account current and future income & expenses in conjunction with implementing a strategy discussed herein.

• The death benefit protection offered by a life insurance policy can be a key component of a sound financial plan.

• We recommend that your client consult their tax and legal adviser to discuss their specific situation before implementing any strategy discussed herein.



Other Considerations

• Financial and medical underwriting will apply and sufficient premiums must be paid over time

• Loans and withdrawals reduce policy cash value and death benefit and may have tax consequences

• For loans to remain income tax-free, the policy must stay in force until death and non-MEC status

• If classified as a MEC, policy distributions are taxable to the extent of gain on a LIFO basis (10% penalty rules may apply before age 59½)

• Withdrawals in the first 15 policy years may have adverse tax consequences*

• Exposure to market volatility if variable life is used• All guarantees within the policy are based on the claims-paying ability of

the issuing company.


*IRC Section 7702(f)(7) (B-C) retests life insurance contract withdrawals and face reductions and may cause adverse income tax consequences.

20


PruLife® Custom Premier II is issued by Pruco Life Insurance Company in all states except New York, where it is issued by Pruco Life Insurance Company of New Jersey and offered through Pruco Securities LLC (member SIPC). Other insurance products are issued by The Prudential Insurance Company of America and its affiliates. All are Prudential Financial companies located in Newark, NJ.

Your client should consider the investment objectives, risks, and charges and expenses carefully before investing in the contract, and/or underlying portfolios. The prospectus, and, if available, the summary prospectus, contains this information as well as other important information. A copy of the prospectus(es) may be obtained from Prudential.com. Your clients should read the prospectus carefully before investing.

It is possible to lose money by investing in securities.

All guarantees and benefits of the insurance policy are backed by the claims-paying ability of the issuing insurance company. Policy guarantees and benefits are not backed by the broker/dealer and/or insurance agency selling the policy, nor by any of their affiliates, and none of them makes any representations or guarantees regarding the claims-paying ability of the issuing insurance company.

© 2015 Prudential Financial, Inc. and its related entities.


Important Information

created exclusively for financial professionals partnership program not for consumer use. presented...

Documents

federal income tax rates

tax foundation

tax justice

tax increases

tax diversification11

future income tax risk

income years

income taxes