BUSINESS CONTINUATION STRATEGIES using life insurance

1. BUSINESS CONTINUATION STRATEGIES using life insurance An introduction to small-business owners One-Way Buy-Sell Agreements PPT-263 1/2014

2. Agenda • Why business continuation planning? • One-way buy-sell agreements Before we begin This presentation is designed to provide general information on the subjects covered. Pursuant to IRS Circular 230, it is not, however, intended to provide specific legal or tax advice and cannot be used to avoid tax penalties or to promote, market, or recommend any tax plan or arrangement. Please note that Allianz Life Insurance Company of North America, its affiliated companies, and their representatives and employees do not give legal or tax advice. We encourage you to consult your tax advisor or attorney.

3. 1 • Why business continuation planning?

4. Why business continuation planning? Try answering the following questions: • What will happen to your business when you retire? • Do you have a business successor lined up and ready to take over? • Will your entire business or a share of your business need to be sold? • Do you already have a buyer and what is the price? • What if you died today? • What would be the consequences to your business partners, employees, customers, debtors, creditors, and most importantly, your family and beneficiaries? • Many small businesses purchase insurance products to provide FINANCIAL PROTECTION for the business owner, key employees, or the business itself.1 1”Small World, Trends in the U.S. Small Business Market,” LIMRA, 2013.

5. Potential pitfalls survivors may face after the death of a business owner

6. How can life insurance fit into business succession planning? • A death benefit provided by life insurance can be a vital part of your business succession planning and employee retention. • Fixed indexed universal life (FIUL) insurance can also help while providing potential tax advantages Some common uses of life insurance in business succession planning

7. The death benefit is the main reason for purchasing life insurance • It passes income-tax-free to the beneficiaries and can be used for: • Income replacement for primary wage earners • Business succession • Mortgage and other debts • Estate tax coverage • Small businesses REQUIRE MULTIPLE TYPES OF FINANCIAL PROTECTION including: • Personal coverage for the business owner • Financial safeguards for the business • Insurance and retirement benefits for the employees1 Source: 1“Small World: Trends in the U.S. Small Business Market, LIMRA, 2013.

8. HOW FIULWORKS MAXIMUM PREMIUM Cash value may be accessed via POLICYLOANS AND WITHDRAWALS1 Any available CASH VALUE Has the potential to GROW as more premium is paid Pays POLICY PREMIUMS Minimum premium POLICY FEES & CHARGES Fees & charges used to fundDEATH BENEFIT TO BENEFICIARIESAND OTHER VARIOUS EXPENSES POLICYHOLDER Policy loans and withdrawals will reduce the available cash value and death benefit and may cause the policy to lapse, or affect guarantees against lapse. Additional premium payments may be required to keep the policy in force. In the event of a lapse, outstanding policy loans in excess of unrecovered cost basis will be subject to ordinary income tax. Tax laws are subject to change and your clients should consult a tax professional.

9. 2 • One-way buy sell agreements

10. One-way buy-sell agreement in action Barb purchases an FIUL policy on Sam’s life sufficient to meet her obligations under the buy-sell agreement. Barb pays the premiums, and is the owner and beneficiary of the policy. Sam (sole owner of business) commits to selling his business at an agreed value upon a triggering event(s) (e.g., death, retirement, disability, etc). Barb (buyer) agrees to purchase the business Buy-sell agreement – at an agreed value upon the triggering event(s). You should consult with an attorney and tax advisor to determine what may be appropriate for your situation. Hypothetical example is for illustrative purposes only. These characters are fictional and not actual Allianz clients.

11. One-way buy-sell agreement in action Sam or his estate will receive funds from Barb. Buy-sell agreement – Sam or his executor will transfer the business interest sold to Barb according to the agreement. Barb retrieves any available cash value from the life insurance policy through policy loans1 or receives the death benefit to meet her obligation within the agreement. Hypothetical example is for illustrative purposes only. These characters are fictional and not actual Allianz clients. 1Policy loans and withdrawals will reduce available cash values and death benefits, and may cause the policy to lapse or affect any guarantees against lapse. Additional premium payments may be required to keep the policy in force. In the event of a lapse, outstanding policy loans in excess of unrecovered cost basis will be subject ordinary income tax.

12. Some advantages for the business owner in a one-way buy-sell agreement There are unique BUSINESS OWNER ADVANTAGES to a one-way buy-sell agreement. • Business owner receives value of their business • Maintains confidence of creditors, employees, and customers • Known buyer established • Provides liquidity for payment of potential estate taxes and settlement expenses • Estate receives a step-up in basis to the current market value of the business at death • Buy-sell agreement may set the value of the business in owner’s estate

13. Some advantages for the buyer in a one-way buy-sell agreement There are unique BUYER ADVANTAGES to a one-way buy-sell agreement. • Buyer receives the opportunity to own the business. • Buyer has the ability to purchase the business using a life insurance death benefit or any available cash value accumulation through policy loans.1 • Life insurance policy death benefit is federal income-tax-free to the beneficiaries. 1Policy loans and withdrawals will reduce available cash values and death benefits, and may cause the policy to lapse or affect any guarantees against lapse. Additional premium payments may be required to keep the policy in force. In the event of a lapse, outstanding policy loans in excess of unrecovered cost basis will be subject to ordinary income tax.

14. One-way buy-sell agreement: Some additional considerations SPECIALconsiderations of one-way buy-sell agreements • The successor buyer needs funds to pay the life insurance premiums. • The business owner must qualify through health and, in some cases, financial underwriting. • There are attorney’s fees when drafting the one-way buy-sell agreement. • Need to identify business assets since business and personal assets are not legally separate for a sole proprietorship. • Agreement may limit the ability to use the business as credit collateral. Consult with your attorney and professional tax advisor to discuss the possibilities for your situation. Ask your financial professional for more information on how life insurance works (including fees and expenses) and which product may be appropriate for your buy-sell strategy.

15. The next step Work with your team of professionals to see if fixed index universal life insurance can help with your business-planning strategies.

16. DisclosuresAllianz Life Insurance Company of North America (Allianz) • Guarantees are backed by the financial strength and claims-paying ability of Allianz Life Insurance Company of North America. • The Employee Retirement Income Security Act (ERISA) may apply. Be sure to consult your tax advisor or attorney regarding your own situation. • Products are issued by Allianz Life Insurance Company of North America, 5701 Golden Hills Drive, Minneapolis, MN 55416-1297. 800.950.1962 www.allianzlife.com • Product and feature availability may vary by state.