BUSINESS CONTINUATION STRATEGIES using life insurance

1. BUSINESS CONTINUATION STRATEGIES using life insurance An introduction to small-business owners Key Person Life Insurance PPT-261 1/2014

2. Agenda • Life insurance death benefit protection • Why business continuation planning? • Key person life insurance 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. Encourage your clients to consult their tax advisor or attorney.

3. 2 Why business continuation planning?

4. Attributed to Andrew Carnegie “Take away all my factories and my equipment. Take away my wealth. But leave me with my key people and in a short time I’ll have it all back again.” Andrew Carnegie

5. 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 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? • The LOSS OF A VITAL EMPLOYEE can have a • much more CATASTROPHIC IMPACT on the survival of a small company than a large one.1 1”Small World, Trends in the U.S. Small Business Market,” LIMRA, 2013.

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

7. 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

8. 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.

9. 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.

10. 3 Key person life insurance

11. Key person life insurance Can be a straight forward way to help ensure business continuity • A death benefit can help protect a small-business owner from the loss of a key employee • Disability of a key employee - Fixed index universal life insurance (FIUL) cash value accumulation potential could be accessed through policy loans and withdrawals¹ • For EMPLOYER OWNED LIFE INSURANCE (EOLI), the • OWNER AND INSURED MUST SIGN a • NOTICE AND • CONSENT FORM. • Work with your attorney to ensure you have all • required documents. 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. Tax laws are subject to change and you should consult your tax professional. Keep in mind most life insurance policies require health and in some cases, financial underwriting.

12. How does key person life insurance work? Key person = Insured Pays DEATH BENEFIT OR ACCESS TO ANY AVAILABLE CASH VALUE¹ BUSINESS = POLICY OWNER & BENEFICIARY INSURANCE COMPANY This hypothetical example is provided for illustrative purposes only. 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. Tax laws are subject to change and you should consult your tax professional.

13. Key person life insurance What happens if a key employee leaves or retires? • Business can continue to own the policy, pay the insurance premium, and receive the death benefit upon the death of your former key employee. • If your key employee is retiring, you can offer the policy as a bonus, at its present value. • Retiring employee would become the owner of the policy. • Such compensation would be considered taxable income for the retiring employee for income tax purposes. • Business can surrender the policy to the life insurance company and obtain the available cash surrender value.¹ 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. Tax laws are subject to change and you should consult your tax professional.

14. Summary • Life insurance death benefit protection • Why business continuation planning? • Key person life insurance • Next step

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 • 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.