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Complete The Dream A Life Insurance Strategy to Help Your Clients Complete their Legacy PRESENTED BY: Joe Sample, [Designations per field stationery guidelines] [Company Approved Title] [Agency Name] [The Prudential Insurance Company of America][if Agency Distribution] [1234 Main Street, Suite 1, Floor 10] [Anywhere], [ST] [12345] [in required states] [<ST> Insurance License Number <1234567890>] Phone [123-123-1234] Fax [123-123-1245] [[email protected]] 0247972-00003-00 Ed. 12/2013 Exp. 04/23/2015 Not for Consumer Use.

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Complete The Dream. A Life Insurance Strategy to Help Your Clients Complete their Legacy. Presented by: Joe Sample, [Designations per field stationery guidelines] [Company Approved Title] [Agency Name] [The Prudential Insurance Company of America][if Agency Distribution] - PowerPoint PPT Presentation

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Page 1: Complete The Dream

Complete The DreamA Life Insurance Strategy to Help Your Clients

Complete their Legacy

PRESENTED BY:

Joe Sample, [Designations per field stationery guidelines][Company Approved Title][Agency Name] [The Prudential Insurance Company of America][if Agency Distribution][1234 Main Street, Suite 1, Floor 10][Anywhere], [ST] [12345][in required states] [<ST> Insurance License Number <1234567890>]Phone [123-123-1234] Fax [123-123-1245] [[email protected]]

0247972-00003-00 Ed. 12/2013 Exp. 04/23/2015

Not for Consumer Use.

Page 2: Complete The Dream

Agenda

• Threats

• Strategy

• Execution

Clients should consider that 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.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.

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Page 3: Complete The Dream

Clients Who May Benefit…

• Age 59½ + and family oriented.• Minimum net worth of $1,000,000 and

sufficient liquid assets to support thisstrategy.

• Have assets that they do not intend to useduring their lifetime and are not needed forsupport in retirement.

• Have sufficient retirement income from othersources to meet current and future incomeneeds and expenses. Additionally, the client should have a financial plan completed as determined in conjunction with their financial advisor.

• Desire to provide for and leave more tochildren or grandchildren.

• Want to reduce “legacy” assets exposure tomarket volatility.

• Want to counter losses to their legacyassets.

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Page 4: Complete The Dream

Threats

$0

$100

$200

$300

$400

$500

$600

$700

$800

0 2 4 6 8 10 12 14 16 18 20 22 24 26 28 30

Thou

sand

s

Tax-Deferred Tax-Deferred After Tax* Taxable After Tax

IRR at Year 30: 7.0%

5.9%

4.9%

Hypothetical growth of $100,000 (non-qualified) invested at 7%(before-tax) assuming a 30% income tax rate.

*Assumes the pre-tax accumulated tax-deferred value is liquidated as a lump sum in the respective years shown subject to a tax rate of 30% to the extent of gain.

Taxes are a reality

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Page 5: Complete The Dream

Threats

• 78 million baby boomers will retire over the next two decades.1

• About 70% of Americans over age 65 will require some type of chronic illness care services during their lifetime.2

• Average national costs of chronic care3 (2010) in the United States:$205/day for a semi-private room in a nursing home ($74,825/year).$229/day for a private room in a nursing home ($83,585/year).$3,293/month for one bedroom unit in an Assisted Living Facility

($39,516/year).$21/hour for a Home Health Aide ($30,660/year at 4 hours/day).

1Source: U.S. Census Bureau, Facts for Figures, 2006.2Source: U.S. Department of Health and Human Services: National Clearinghouse for Long-Term Care Information, 20103Source: www.longtermcare.gov. U.S. Department of Health and Human Services. May, 2011.

Statistics referenced on this slide are believed to be the most up to date.

Chronic illness is a reality

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Page 6: Complete The Dream

Threats

• 15 million Americans currently provide UNPAID care to adults with Alzheimer’s or another dementia (22 hours per week on average).4

• 80% of care provided at home is delivered by FAMILY caregivers.4

• Less than 10% of older adults receive all their care from PAID workers.4

4Source: Alzheimer’s Association, 2011 Alzheimer’s Disease Facts and Figures, Alzheimer’s & Dementia, Volume 7, Issue 2

Statistics referenced on this slide are believed to be the most up to date.

Chronic illness is a reality

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Page 7: Complete The Dream

Threats

• While the long-term historical performance of the market has been positive, downturns are a normal part of the market cycle.

• Bear markets are an ongoing reality:

• 16 bear markets since 1929.*

• 15-month average duration.*

• Average decline of 33.5% in the S&P 500.*

* Source: “A Bear Market History Lesson” By Gerri Willis – October 8, 2008).

How many times can your clients’ legacy afford a33.5% reduction in value?

Statistics referenced on this slide are believed to be the most up to date available as of May, 2013.

Market volatility is a reality

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Page 8: Complete The Dream

Threats

A hypothetical portfolio that was worth $1 million of legacy assets on January 1st, is worth about $750,000 at year end. How long will it take to recoup the

$250,000 of losses if $750,000 were reinvested at age 72?

Net rate of return# of years needed to

reach prior value Age

2.0%

3.0%

4.0%

5.0%

14.5

9.7

7.3

5.9

86.5

81.7

79.3

77.9

The uphill climb

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Page 9: Complete The Dream

How Do You Help Clients HedgeAgainst These Threats To Ensure Their Legacy?

If you could offer clients a strategy for their legacy assetsthat may: Help remove the impact of market volatility. Help counter losses or volatility experienced following a downturn. Preserve and potentially increase the ultimate value received by heirs. Grow tax-deferred and be received by heirs income tax-free. Accelerate payments in the event of chronic or terminal illness. Do all of the above on a predictable, guaranteed basis?

Would you be interested?Life insurance may offer all of the above!

Guarantees and benefits of the insurance policy are based on the claims-paying ability of the issuing insurance company.

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Page 10: Complete The Dream

Strategy

THE STRATEGY: Reposition Legacy AssetsIf appropriate, your clients may want to consider using all or part of their assets intended for their heirs to purchase a PruLife® Universal Protector life insurance policy, with a guaranteed death benefit, equal to or greater than the amount that was to be their financial legacy.

Life Insurance

Heirs

Legacy Assets

Client

Balance of Legacy Assets at Death

Net Death Benefit

Income tax on income or withdrawal?

Premium

BenefitAccess Rider

Income or Withdrawal

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Page 11: Complete The Dream

Strategy

Legacy Assets Value: $1,000,000

Legacy Assets Value: $750,000

Annual Premium1: $250,000 for

3 years

Total Death Benefit:

$1,335,360

Annual Premium1: $125,000 for

3 years

Total Death Benefit:

$645,647

Annual Premium: $37,500 for

10 years

Total Death Benefit:

$652,242

Market Downturn

Assumes a female, age 72, Non-Smoker Plus, PruLife® Universal Protector, guaranteed to age 105.

1. These policies will become MECs in year 1 and will remain a MEC for the life of the policy. Distributions (including loans) are taxable to the extent of gain in the contract, and an additional 10% federal income tax penalty may apply if taken prior to age 59½.

RepositioningLegacy Assets

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Life insurance policy cash values are accessed through withdrawals and policy loans. Interest is charged on loans. In general, loans are not taxable, but withdrawals are taxable to the extent they exceed basis in the policy. Loans outstanding at policy lapse or surrender before the insured’s death will cause immediate taxation to the extent of gain in the policy. Unpaid loans and withdrawals reduce cash values and policy benefits and negate any guarantee against lapse. If a policy is a Modified Endowment Contract (MEC), distributions (including loans) are taxable to the extent of income in the policy, and an additional 10 percent federal income tax penalty may apply. You may wish to consult your tax advisor for advice regarding your particular situation.

Page 12: Complete The Dream

Strategy: Life insurance with BenefitAccess

Expand the living benefits of life insurance with our BenefitAccess Rider

For clients who: • Need death benefit protection

• Are concerned about chronic and terminal illness protection

Life insurance with our optional BenefitAccess Rider may be the

protection option they are looking for since it can:• Provide a death benefit to beneficiaries

• Accelerate the death benefit to the client if they become chronically

or terminally ill

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Page 13: Complete The Dream

BenefitAccess for Chronic Illness

Accelerates up to 100% of death benefit and provides income to clients diagnosed as chronically ill, and otherwise meeting the terms of the rider.

Proceeds are typically federally income-tax-free*

Maximum monthly benefit of 2% of the death benefit or the IRS Per Diem Limit ($330/day for 2014), if less, capped at 4% annual increase

Indemnity benefit

Charges are waived while on claim. Provides lifetime lapse protection if 25 monthly benefit payments are made. Otherwise, insured will need to resume premium payment after recovery.

Benefit payments reduce death benefit dollar-for-dollar

*Part of the monthly payment may be taxable, customer should consult with their tax advisor.

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Page 14: Complete The Dream

BenefitAccess for Terminal Illness

Upon being certified as terminally ill with a life expectancy of 6 months or less:

• Accelerates the death benefit in a lump sum• Or a portion in a lump sum (at least $25,000 must remain)• If a portion is accelerated the rest could later be accelerated

in full• Benefits reduced by discount factor• No policy charge for this portion (a fee applies each time it is

used)

Benefits for chronic illness and terminal illness can not be paid simultaneously. Terminal illness benefits could be paid subsequent to chronic illness benefits but once terminal benefits are paid, chronic illness benefits are no longer available.

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Page 15: Complete The Dream

BenefitAccess Rider

No receipts (indemnity benefit)

No waiting period

No exclusions for family caregivers

All charges waived once benefits begin*

All charges permanently waived after 25 months of benefits

*If rider benefits stop within 25 months, additional premiums may be required to keep the policy in force.

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Page 16: Complete The Dream

Strategy

Note: In the event the Death Benefit is accessed to help with a chronic or terminal illness, the remaining value will decrease leaving less to the beneficiaries according to the terms of the BenefitAccess Rider.

This is a hypothetical example. Financial Advisors should verify their specific firm requirements regarding a life policy with the BenefitAccess Rider.

$1,335,360

$645,647 $652,242

$1,180,659

$573,967 $573,965

$250,000 3 Pay $125,000 3 Pay $37,500 10 Pay

Without BenefitAccess With BenefitAccess

Death Benefit Comparison

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Page 17: Complete The Dream

Strategy (4% Increase in IRS Per Diem Limit)

*The IRS per diem limitation may be adjusted for inflation by the IRS. Prudential caps the maximum annual increase at 4%. For the purposes of this example, the per diem limitation is being inflated at a hypothetical annual rate of 4%. The Maximum Monthly Benefit at any given point in time may be less than what is illustrated above depending on actual IRS adjustments to the per diem limitation. This is a supplemental illustration and only valid if preceded or accompanied by a basic illustration. Please refer to the basic illustration for guaranteed and non-guaranteed values and other important policy information.

Assuming a qualifying chronic illness at age 85 and death at age 89:Total BenefitAccess distributions taken = $1,035,236

Net Death Benefit to heirs = $145,423

AgeAnnual

Premium

Max Annual BenefitAccess

Available*

Max Annual BenefitAccess Amount Taken

Net Death Benefit

BenefitAccess Lifetime Benefit

Amount72 250,000 115,200 0 1,180,659 1,180,65973 250,000 118,800 0 1,180,659 1,180,65974 250,000 124,600 0 1,180,659 1,180,65980 - 157,659 0 1,180,659 1,180,65985 - 190,800 190,800 989,859 989,85986 - 198,000 198,000 791,859 791,85987 - 207,469 207,469 584,390 584,39088 - 215,767 215,767 368,623 368,62389 - 223,200 223,200 145,423 145,423

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Page 18: Complete The Dream

Strategy (0% Increase in IRS Per Diem Limit)

Assuming a qualifying chronic illness at age 85 and death at age 89:Total BenefitAccess distributions taken = $576,000

Net Death Benefit to heirs = $604,659

AgeAnnual

Premium

Max Annual BenefitAccess

Available*

Max Annual BenefitAccess Amount Taken

Net Death Benefit

BenefitAccess Lifetime Benefit

Amount72 250,000 115,200 0 1,180,659 1,180,65973 250,000 115,200 0 1,180,659 1,180,65974 250,000 115,200 0 1,180,659 1,180,65980 - 115,200 0 1,180,659 1,180,65985 - 115,200 115,200 1,065,459 1,065,45986 - 115,200 115,200 950,259 950,25987 - 115,200 115,200 835,059 835,05988 - 115,200 115,200 719,859 719,85989 - 115,200 115,200 604,659 604,659

*The IRS per diem limitation may be adjusted for inflation by the IRS. Prudential caps the maximum annual increase at 4%. For the purposes of this example, the per diem limitation is being inflated at a hypothetical annual rate of 0%. The Maximum Monthly Benefit at any given point in time may be less than what is illustrated above depending on actual IRS adjustments to the per diem limitation. This is a supplemental illustration and only valid if preceded or accompanied by a basic illustration. Please refer to the basic illustration for guaranteed and non-guaranteed values and other important policy information.

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Page 19: Complete The Dream

5.82%

3.55%2.87% 2.55%

1.99%

Age 80 Age 85 Age 88 Age 90 Age 95

IRR on Death Benefit

Strategy

Longevity may result in a negative internal rate of return

Life Expectancy

Internal Rate of Return on the $1,180,659 Death Benefit Only Scenario: $250,000 three pay with BenefitAccess

(No BenefitAccess Claims Paid)

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Page 20: Complete The Dream

Strategy

Life Expectancy

Internal Rate of Return on the Death Benefit OnlyScenario: $250,000 three pay with BenefitAccess

(No BenefitAccess Claims Paid)

* Tax-Equivalent IRR assumes a 25% income tax. Longevity may result in a negative internal rate of return

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5.82%

3.55%2.87% 2.55%

1.99%

7.76%

4.73%3.83% 3.40%

2.65%

Age 80 Age 85 Age 88 Age 90 Age 95

IRR on Death Benefit Tax-Equivalent IRR*

Page 21: Complete The Dream

Taking a Closer Look At Legacy Assets

Legacy Assets May Include:• Annuities*

• Credit Shelter Trust

• IRAs

• CDs

• Municipal Bond Portfolios*

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*Note that only registered representatives with the appropriate FINRA registration may make any recommendation to replace variable annuities and municipal bonds

Page 22: Complete The Dream

Summary

Threats• Life insurance can be a

great “hedging” strategy.

Strategy• Repositioning legacy

assets with life insurance.

Execution• Who it’s for and how to

approach them.

A properly structured life insurance strategy, when incorporated into a client’s Legacy Plan, can help counter losses in, or potentially help enhance, the value of the legacy assets. It may also substantially reduce the impact of:

• Tax Erosion• Chronic Illness• Market Volatility

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Page 23: Complete The Dream

Next Steps

• Individual meeting

• Identify prospects

• Build and present case

Clients Who May Benefit Age 59 ½ + and family oriented. Minimum net worth of $1,000,000 and

sufficient liquid assets to support this strategy.

Have assets that they do not intend to use during their lifetime and are not needed for support in retirement.

Have sufficient retirement income from other sources to meet current and future income needs and expenses. Additionally, the client should have a financial plan completed as determined in conjunction with their financial advisor.

Desire to provide for and leave more to children, grandchildren or charity.

Want to reduce “legacy” assets exposure to market volatility.

Want to counter losses to their legacy assets.

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Page 24: Complete The Dream

Execution

Conversation Points • Are you ever going to spend all this money you have in

your investment account?• What are you planning to do with it?• Will you be leaving it to your children and/or

grandchildren?• If I could show you a way to leave them with potentially

more, would you be interested? • Let me share an idea with you …

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Page 25: Complete The Dream

Why “Complete The Dream”?

• Meet client needs

• Deepen client relationships

• Grow your business

• Sales support

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Page 26: Complete The Dream

Important Considerations• The strategy is intended for fixed, universal life insurance products.• In addition to the asset or income they may be repositioning to implement the

strategy, clients should have sufficient liquid assets to support their current and future income and expenses. Equity in the home should not be considered a liquid asset.

• This concept is only intended to be used for assets that will not be needed for living expenses for the expected lifetime of the insured. It is the responsibility of the client to estimate these needs and expenses and it is recommended that they consider developing a comprehensive financial plan in conjunction with implementing the strategy being considered. 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.

• If your client’s financial or legacy planning situation changes and they need to use the assets or income that are being earmarked for future life insurance premiums, they may be unable to continue to make premium payments, the life insurance policy may terminate and the results illustrated may not be achieved.

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Page 27: Complete The Dream

Important Considerations (continued)• If the asset or income earmarked for future life insurance premiums becomes

fully exhausted, premiums may have to be paid using other assets or income to keep the life insurance policy in force.

• Depending on your client’s life span, it is possible that your client’s beneficiary may receive more by just inheriting the assets, rather than by receiving the death benefit of the life insurance policy that was purchased.

• Clients may have to pay taxes, early withdrawal penalties, and/or other fees on assets liquidated to pay the life insurance policy premiums.

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

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Page 28: Complete The Dream

Important Information

The BenefitAccess Rider is available for an extra premium. Additional underwriting requirements and limits may also apply. Obtaining benefits under the terms of the rider will reduce and may eliminate the death benefit.

This rider is not long-term care (LTC) insurance and it is not intended to replace LTC.

Benefits paid under the BenefitAccess Rider are intended to be treated for federal tax purposes as accelerated life insurance death benefits under IRC §101(g)(1)(b). Tax laws related to the receipt of accelerated death benefits are complex and may be taxable in certain circumstances. Receipt of benefits may affect eligibility for public assistance programs such as Medicaid. Accelerated benefits paid under the terms of the Terminal Illness portion of the rider are subject to a $150 ($100 in Florida) processing fee. You should consult your tax and legal advisors prior to initiating any claim. A licensed heath care practitioner must certify the chronic or terminal illness to qualify for the benefits. Chronic illness claims will require recertification by a licensed health care practitioner. Other terms and conditions may apply.

The rider may not cover all of the costs associated with chronic illness. The rider is a life insurance accelerated death benefit product, is generally not subject to health insurance requirements, and may not be available in all states.

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.

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Page 29: Complete The Dream

Important InformationThis material has been prepared by The Prudential Insurance Company of America to assist financial professionals.It is designed to provide general information in regard to the subject matter covered. It should be used with the understanding that we are not rendering legal, accounting or tax advice. Such services should be provided by the client’s own advisors. Accordingly, any information in this document cannot be used by any taxpayer for purposes of avoiding penalties under the Internal Revenue Code.

PruLife® Universal Protector is issued by Pruco Life Insurance Company in all states except New York, where, if available, it is issued by Pruco Life Insurance Company of New Jersey. The contract number is ULNLG-2013. Other insurance policies and annuities are issued by The Prudential Insurance Company of America and its affiliates. Securities are offered through Pruco Securities, LLC. All are Prudential Financial companies located in Newark, NJ. Each is solely responsible for its own financial condition and contractual obligations.

BenefitAccess is covered by U.S. Patent No. 7,958,035, which was issued on the insurance product management system for an accelerated benefit provided in response to a medical condition, where the benefit is paid to the policyowner without restriction on use of proceeds.

Death benefit proceeds are generally received federal income tax free as provided in Internal Revenue Code Section 101(a).

Prudential, the Prudential logo, and the Rock symbol are service marks of Prudential Financial, Inc. and its related entities.

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Page 30: Complete The Dream

The Living Needs Benefit℠ is an accelerated death benefit and is not a health, nursing home, or long-term care insurance benefit and is not designed to eliminate the need for insurance of these types. There is no charge for this rider but, when a claim is paid under this rider, the death benefit is reduced for early payment, and a $150 processing fee ($100 in Florida) is deducted. If more than one policy is used for the claim, each policy will have a processing fee of up to $150 deducted ($100 in Florida). Portions of the Living Needs Benefit payment may be taxable, and receiving an accelerated death benefit may affect eligibility for public assistance programs. The federal income tax treatment of payments made under this rider depends upon whether the insured is the recipient of the benefit and is considered "terminally ill" or "chronically ill." We suggest that clients seek assistance from a personal tax advisor regarding the implications of receiving Living Needs Benefit payments. This rider is not available in Minnesota to new purchasers over age 65 until the policy has been in force for one year, and the nursing home option is not available in Connecticut, Florida, Massachusetts, New York or the District of Columbia. This rider is not available in Washington state. In Oregon, term policies must include the waiver of premium benefit to be eligible for this rider.

Securities and Insurance Products: Not Insured by FDIC or Any Federal Government Agency. May Lose Value.

Not a Deposit of or Guaranteed by Any Bank or Bank Affiliate.

Important Information

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