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Traditional Asset Class Returns – (25 years 1986-2010)

Life Insurance as an Alternative Asset. Traditional Asset Class Returns – (25 years 1986-2010). Life Insurance as an Alternative Asset Class. 5.0%. Treasury Bills. How much would a man age 53 need to deposit today in each of these traditional asset classes in

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Traditional Asset Class Returns – (25 years 1986-2010)

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  1. Life Insurance as an Alternative Asset • Traditional Asset Class Returns – • (25 years 1986-2010) Life Insurance as an Alternative Asset Class 5.0% Treasury Bills How much would a man age 53 need to deposit today in each of these traditional asset classes in order for his investment to grow to $10,000,000 by his life expectancy? 8.5% Corporate Bonds 9.7% U.S. Stocks 8.4% Real Estate Sources: Treasury Bills - US Treasury 90 day Bills, Corporate Bonds – Barclay’s Capital US Credit, US Stocks - S&P 500, Real Estate - NCREIF

  2. Life Insurance as an Alternative Asset Male 53 Pref Non-Tobacco Single Deposit required to grow to $10,000,000 by life expectancy (1,2) 5,000,000 $4,130,533 4,000,000 3,000,000 $2,265,004 $2,303,764 $2,234,013 $1,851,123 2,000,000 1,000,000 Bonds Stocks Real Estate Life Insurance(3) T Bills (1) 25.3 yrs US Life Table (sex distinct) (2) 25 yr avg. (1986-2010) returns taxed @ 28% 90 day T-Bills 5.00%, Bonds 8.50% – Barclay’s Capital US Credit, Stocks 9.70% - S&P 500, Real Estate 8.4% - NCREIF (3) Full Lifetime Guarantee premium using Lincoln LifeGuarantee UL 2012, premium to guarantee to LE $1,980,000

  3. Stocks Life Insurance Bonds Real Estate T-Bills Life Insurance as an Alternative Asset Historical Risk / Return Characteristics of Combined Traditional Asset Classes Modern Portfolio Theory Historical Risk / Return Characteristics of Traditional Asset Classes Expected Return Non Correlation Guaranteed DB @ LE Risk Adjusted Return Measure (TOTAL RETURN - RISK FREE RETURN) SHARPE RATIO = STANDARD DEVIATION Expected Risk (Standard Deviation)

  4. “In the long run we are all dead” John Maynard Keynes The General Theory of Employment, Interest and Money 1936

  5. Facsimile Email Values(1) Dividends Pay Phones Asset Allocation Annual Returns (3) Dial Up Mutual Funds 40 S&P 500 Annual Returns Indexed Annual Returns (2) Cell Phones ETF’s High Speed 30 VHS 20 VCR Day Trading 10 High Speed 0 ‘91 ‘92 ‘93 ‘94 ‘95 ‘96 ‘97 ‘98 ‘99 ‘00 ‘01 ‘03 ‘04 ‘05 ‘06 ‘10 ‘02 ‘07 ‘08 ‘09 Alcohol -10 Texting -20 Hard Line -30 Cell Phones -40 Economics of Indexed Universal Life Sample S&P 500 Indexing Methodology 1991-2010 Sell Option 13% Safe Range of possible earnings 1% Purchase Option “ I took the initiative in creating the internet.” Al Gore Inventor 3-11-99 on CNN (1)One-year S&P 500 Index % change. Past performances of the S&P 500 index is no guarantee of future changes or future index earnings. (2)One-year Point-to-Point Indexed Account – receives indexed interest linked to the percentage change of the S&P 500 over the segment year. (3)Asset Allocation: 65% S&P 500, 20%MSCI World Ex-US, 15%Barclays Capital U.S. Aggregate.

  6. “The portfolio has proved to be riskier, more volatile and less effective as an economic hedge than we thought.” May 11, 2012 Describing a $2B loss on a portfolio designed to manage risk Jamie Dimon CEO JPMorgan Chase Bank

  7. Economics of Indexed Universal Life - What a difference a Millennium makes - 25 Last Decade 1991- 2000 First Decade 2001- 2010 S&P 500 Asset Allocation Historical Returns 13% Cap 1% Floor TBills 0 0 25 Historical Risk (Standard Deviation) Data sources: Annual Standard & Poors 500 Index with dividends, 13% Cap & 1% Floor excluding dividends Asset Allocation: 65% S&P 500, 20% MSCI World Ex-US, 15% Barclays Capital U.S. Aggregate.

  8. Economics of Indexed Universal Life - What a difference a Millennium makes - 25 Last Decade 1991- 2000 First Decade 2001- 2010 Combined First & Last Decades 1991- 2010 S&P 500 Historical Returns Asset Allocation 13% Cap 1% Floor TBills 0 0 25 Historical Risk (Standard Deviation) Data sources: Annual Standard & Poors 500 Index with dividends, 13% Cap & 1% Floor excluding dividends Asset Allocation: 65% S&P 500, 20% MSCI World Ex-US, 15% Barclays Capital U.S. Aggregate.

  9. 1980 1990 2000 2010 1960 1970 41,578 $1,000 Growth over 50 Years 13% Cap 1% Floor The power of 1% Rule 1: NEVER lose principal Rule 2: NEVER forget rule 1 17,374 S&P 500(1) (1) Growth based on Annual change in value of S&P500 Index excluding dividends beginning and ending on December 28th.

  10. Lincoln LifeReserve Indexed UL Lincoln AssetEdge VUL 2009 90 90 100 100 50 50 LE LE 70 70 20 yr Accumulation Period 20 yr Distribution Period The Participating Loan Differentiator Cash Value Accumulations $235,000 Opt 2 to 1 Switchassuming 7% net return (1) F 50 Standard Non Tobacco, $10,000 annual premium yrs 1-20 $33,000 annual withdrawals / loans from yr 21 to 40 The Participating Loan Differentiator AGE AGE (1) Lincoln AssetEdge VUL 2009 assuming 7.75% gross / 7.00% net , assuming 0% return no income is available Lincoln LifeReserve Indexed UL assuming fixed 3.90% (10% allocation) , indexed 7.35% (90% allocation) assuming 1% return no income is available

  11. The Participating Loan Differentiator Lincoln LifeReserve Indexed UL Loans • Borrow up to 100% of cash surrender value • 5% guaranteed loan interest charges • Loaned values continue to receive current indexed interest crediting Loan Example 1 Loan Example 2 7%hypothetical return on borrowed funds 1%guaranteed return on borrowed funds - 5%guaranteed loan rate(1) -4%guaranteed debt on loaned funds + 2%gain on borrowed funds Loans and withdrawals will reduce account value and death proceeds (1) 5% loan rate guaranteed yrs 11+, 6% loan rate guaranteed yrs 1-10

  12. Interest Credited (2) 23,263 16,896 31,067 46,530 47,415 64,661 55,152 43,899 68,330 89,789 20011.00<4.00> 2002 1.00<4.00 > 200313.008.00 200412.897.89 2005 5.41.41 200613.008.00 2007 3.531.47 2008 1.00<4.00> 200913.008.00 201013.008.00 800 2,414 2,893 1,169 5,589 11,030 17,543 25,182 34,004 28,973 1991 13.00 8.00 1992 12.517.51 1993 6.77 1.77 1994 1.00<4.00> 199513.008.00 199613.008.00 199713.00 8.00 1998 13.008.00 1999 13.008.00 20001.00<4.00> 8% + 8% 2.97% Average Difference (1) Lincoln LifeReserve Indexed UL Assuming: Interest crediting based on historical S&P 500 Composite Stock Price Index (excluding dividends) from 2010 through 1991, LifeReserve Indexed UL (2011) was not available in 1991. Future results are not based on past performance and may be better or worse than those shown. Interest Charged (1) - 4% -4% ‘01 ‘02 ‘03 ‘04 ‘05 ‘06 ‘07 ‘08 ‘09 ‘10 subject to a 13% cap and 1% minimum guarantee using 100% allocated to 1 Year Point to Point crediting method.For illustrative purposes only, since Lincoln The Participating Loan Differentiator Historical Loan Interest (1) Hypothetical Historical (1) $10,000 Annual Loan 1991 through 2010 Credited Loan “Earned” Year Rate Differential Interest Credited Loan “Earned” Year Rate Differential Interest 20 yrs - 1991 - 2010 1991 - 2000 2001 - 2010 13% 13% 13% 3.94% Average Loan Interest Differential Net Interest “EARNED” 4.92% Average Difference Potential Loan Rate Differential on Borrowed money 0% 0% 0% -5% -5% -5% ‘91 ‘92 ‘93 ‘94 ‘95 ‘96 ‘97 ‘98 ‘99 ‘00 ‘01 ‘91 ‘92 ‘02 ‘03 ‘93 ‘94 ‘04 ‘95 ‘05 ‘06 ‘96 ‘97 ‘07 ‘08 ‘98 ‘09 ‘99 ‘00 ‘10

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