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YOU CAN COUNT ON US<br />For Producer Use Only<br />

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In The Next 4 Minutes You Will Learn…<br /><ul><li> Why advisors should initiate policy reviews

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Common problems with current life insurance policies

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Current industry statistics

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Industry changes and updated products

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Policy evaluation process</li></ul>For Producer Use Only<br />

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Life Insurance Policy Review<br />Of the many financial instruments that make up a client’s portfolio, life insurance policies tend to be the least monitored. Many portfolios contain life insurance policies that have not been reviewed since the policies were purchased. Like other financial tools, life insurance policies need to be managed and adjusted to keep pace with market conditions and with the insured’s needs and goals.<br />As a financial professional, a policy review will help cover your fiduciary responsibility to your client by identifying changes including:<br /><ul><li> new job or promotion

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marriage, divorce or death of spouse

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purchase of a new home

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birth or adoption of a child (grandchild)

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increase/decrease of debt

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improved insurability

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started a new business

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beneficiary change

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insurer solvency</li></ul>For Producer Use Only<br />

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Common Policy Problems<br />Here are a few common problems uncovered during policy reviews:<br /><ul><li>Crediting or dividend rate at time of purchase was higher than the current crediting rate of the policy. The policy is greatly underfunded and will lapse well before the participant’s projected mortality.

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Client’s policy was issued when the client was a smoker; but the client stopped smoking over 10 years ago. Premiums still reflect the smoker classification.

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Client took out large loans on whole life policies. The loans are still outstanding and the client is paying interest rates of 7% or higher.

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Policy values are not projected to be high enough to ever pay the policy premiums.

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5-10% of policies are in danger of lapsing in less than 3 years, with another 20% lapsing in 3-7 years.

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80% warrant restructuring.

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Over 70% of life insurance policies have no assigned agent.</li></ul>For Producer Use Only<br />

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A Review of 8,000 Policies Found…<br />For Producer Use Only<br />Carrier Ratings<br /><ul><li> 9% of policies do not meet criteria

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A.M. Best, Fitch, S&P, Moody’s, Weiss, Comdex

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Criteria would be “excellent” rating by A.M. Best and “secure” ratings by two other agencies.</li></ul>Based on the statistics to the left, at least 33% of all policies should be reviewed.<br />Coverage to Life Expectancy<br /><ul><li>14% of policies do not cover to Life Expectancy (2001 CSO)</li></ul>Potential Problem<br /><ul><li>9% have policy loans</li></li></ul><li>Those 8,000 Policies Had…<br />For Producer Use Only<br /><ul><li>An Average Cash Value of $100,000

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6% of policies had a cash surrender value greater than $500,000</li></ul>Resource Insurance Consultants (RIC) of Omaha, Nebraska<br />

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The Industry Response<br />As with any product evolution, life insurance products have become more efficiently priced and flexible in nature. In addition, there are many variations of product architectures available that can serve as wonderful alternatives to older policies that are not performing, and/or were never structured properly. The industry response has focused on the following areas:<br />Regulatory<br />- Reserves on secondary guarantee products<br />Reinsurance Landscape<br />- Consolidation in reinsurance industry<br /> - Older age mortality<br /> - Table shaving programs<br />Product Design Trends<br /> - Industry reached floor on low premiums<br /> - Refinement of features<br /> - Priced to minimize undesirable sales<br />Interest Rate Trends<br /> - Near historic low-yields, both short and long-term<br /> - Impact on secondary guarantee pricing<br />For Producer Use Only<br />

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2001 CSO Mortality Table Changes<br />Premiums to Age 121<br />Lower Guaranteed COI’s<br />Lower TAMRA / DEFRA Premiums<br />Guaranteed Cost of Insurance Charges<br />Male Non-tobacco tables used<br />For Producer Use Only<br />

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Product Landscape<br />The industry has responded with a lineup of products that can help clients reach their financial and insurance goals, while still providing a comfortable level of stability.<br />Term Life (TL) – life insurance that pays a sum of money only if the person who is covered dies within a specific period of time<br />Universal Life (UL) – permanent life insurance where premium payments above the cost of insurance are credited to the cash value<br />Whole Life (WL) – life insurance that remains in force throughout somebody’s life rather than only for a term of years<br />Indexed Universal Life (IUL) – affordable life insurance with the ability to accumulate cash values that grow with the upward movement of a stock index without the normal downside risk associated with the equities market<br />Variable Universal Life (VUL) – life insurance that builds cash value, which can be invested in a variety of separate accounts<br />For Producer Use Only<br />

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Risk vs. Reward of Life Insurance Policies<br />Risk vs. Reward Trade Off<br />(By Types of Permanent Life Insurance Product)<br />High<br />Variable Universal Life<br />Indexed Universal Life<br />Growth Potential<br />(Cash Accumulation)<br />Whole Life<br />Universal Life<br />Term Life<br />Low<br />High<br />Volatility (Risk)<br />For Producer Use Only<br />

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How PEP Can Help<br />Policy Evaluation Process (PEP) provides an objective perspective on your client’s:<br /> Life insurance requirements<br /> Life insurance performance<br /> Life insurance options<br />A simple, yet thorough, analysis process can help bring transparency and confidence to life insurance choices.<br />For Producer Use Only<br />

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The PEP Process<br />For Producer Use Only<br />Review and evaluate <br />current policies and <br />compare them to <br />alternative solutions.<br />Review<br />Analyze<br />Evaluate<br />1<br />2<br />3<br />Review your client’s <br />current needs and <br />purpose for life <br />insurance.<br />Does the existing <br />amount and type of <br />insurance meet their<br />current requirements?<br />Discuss your client’s needs<br />and objectives and <br />Complete the In-Force<br />Policy Review Form.<br />

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Possible Outcomes of PEP<br />A<br />Policy performing<br />Continue to review periodically to be sure policy is on course.<br />If existing policy is performing as expected or better, and if needs have not changed, no further analysis is needed. <br />B<br />Policy not performing<br />If funding needs to be increased to reach goal, or if the goal has changed, work with your advisor to correct the situation within the existing policy. <br />If existing policy is not performing as expected, or if needs have changed, determine action required to reach goal within existing policy.<br />Evaluate<br />C<br />Consider alternatives<br />Work with your advisor to determine which new policy would best suit your needs.<br />If appropriate, consider other policies.<br />For Producer Use Only<br />

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Possible Reasons To Keep A Policy<br />For Producer Use Only<br />1<br />New contestable period<br /><ul><li> Any time a new policy is purchased a new contestable period</li></ul> begins and can be contested within the first two years.<br />New suicide period<br /><ul><li> A new two-year suicide period begins with a new policy.</li></ul>2<br />Existing loans<br /><ul><li>Some policies offer a favorable loan interest rates or “zero spread” loans after a policy has been in-force for a period of time, such as 10 years. </li></ul>3<br />New acquisition costs<br /><ul><li> New life insurance contracts contain sales charges and acquisition costs that must be recouped via the payment stream. Older policies may have already accounted for these charges.</li></ul>4<br />

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Possible Reasons To Keep A Policy<br />For Producer Use Only<br />5<br />Guaranteed crediting rates<br /><ul><li>There may be a higher guaranteed minimum interest crediting rate on an older policy.</li></ul>Surrender period is less<br /><ul><li>Beginning a new life insurance policy also means a new period for surrender charges. It could be that your existing policy is almost through the surrender period.</li></ul>6<br />Special internal exchange rules<br /><ul><li>Some policies have a special internal exchange feature. This might include a favorable underwriting, or waiving surrender charges if you were to make a transfer.</li></ul>7<br />Change in underwriting status<br /><ul><li> If you have experienced an adverse change in your health, a new policy might mean a higher rating. It might be best to consider paying additional premium in the existing policy to keep it in-force.</li></ul>8<br />

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Possible Reasons To Exchange A Policy<br />For Producer Use Only<br />1<br />Secondary guarantees<br /><ul><li>A newer policy design feature includes the ability to guarantee the death benefit based on a fixed premium structure.</li></ul>Better mortality<br /><ul><li>Many new policies have lower mortality expenses than existing policies, sometimes significantly lower.</li></ul>2<br />Loan treatment<br /><ul><li>Under the Section 1035 Exchange rules the IRS allows for the transfer of a loan along with the cash value from an existing life insurance policy to another life insurance policy.</li></ul>3<br />More competitive plans<br /><ul><li>Market changes can lead to more competitive products with lower costs and/or features and benefits not available on earlier plans.</li></ul>4<br />

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Possible Reasons To Exchange A Policy<br />For Producer Use Only<br />Preferred underwriting<br /><ul><li>Expanded classes of standard underwriting now include Preferred, Preferred Plus, and in some instances even a Preferred Select Plus for both smoker and nonsmoker classes.</li></ul>5<br />6<br />Special underwriting programs<br /><ul><li>If you are currently rated, and the existing company won’t remove the rating, it is possible that you may qualify under a special underwriting program.</li></ul>7<br />Extended maturity<br /><ul><li>Many existing policies have an age 85, 90, or 95 maturity date. If a policy matures with an outstanding loan or lapses, any gain that has been received is taxable. Paying income tax at that time can be devastating to a policy owner, as the taxes are due but there is usually not enough net cash value in the policy to pay the tax. This problem is avoided with some new policies which have no maturity date. They are designed to continue the death benefit as long as you live.</li></li></ul><li>Possible Reasons To Exchange A Policy<br />For Producer Use Only<br />Company strength<br /><ul><li>One of the most important factors you should consider is the strength and stability of the issuing life insurance company. The higher the ratings of a company, the more likely this company is to keep its promises to its policy owners.</li></ul>8<br />9<br />Legislative benefits – pre-TAMRA<br /><ul><li>If a contract was issued before June 21, 1988, it may have some tax benefits that are not available with a new policy. If one of these plans is 1035 exchanged to a newer plan, it’s very possible that the new plan won’t be a Modified Endowment Contract (MEC). When cash value is transferred from one policy and qualifies under the 1035 Exchange provision, the cash value is not considered a single premium, but spread over several years.</li></li></ul><li>Understanding the 1035 Exchange<br />1035 Exchange<br />Insurance policy or annuity policy<br />Insurance policy or annuity policy<br />Direct transfer of accumulated funds, with no taxable event<br />Benefits of a 1035 Exchange <br />Allows for the exchange of outdated contracts for more current and efficient contracts<br />Preserves the original policy’s tax basis and defers recognition of gain for federal income tax purposes<br />For Producer Use Only<br />

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Trust-Owned Life Insurance Due Diligence<br />Trustees need to provide ongoing due diligence on the life insurance owned by the trust to avoid possible litigation.<br />PEP can be an integral part of fulfilling the necessary due diligence, addressing the following key questions:<br />Do the current life insurance policies still meet the trust beneficiaries’ needs, or the purposes for which they were originally purchased?<br />Are there increasing premium requirements?<br />Are there newer policies that may provide secondary death benefit guarantees, lower costs due to mortality improvements, additional rider options, or improved underwriting classifications?<br />What are the financial ratings and stability of the life insurance carrier?<br />For Producer Use Only<br />

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Are You Evaluating Your Clients’ Life Insurance Polices?<br />Here Are 4 Ways To Get Started…<br />1. Download a quote request form from www.abacusinsadvisors.com<br />2. Email us at illustrations@abacusinsadvisors.com<br />3. Request your copy of our customized In Force Policy Review Form.<br />4. Call us at 877.672.1401 <br />For Producer Use Only<br />

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EXCEED BEYOND YOUR EXPECTATIONS.<br />Join Abacus Insurance Advisors.<br />Established relationships with carriers, expert guidance and exceptional service are just a few of our concierge level offerings.<br />At AIA, we take care of your back office needs so you can focus on building your business. We invite you to leverage our comprehensive resources and become another AIA success story.<br />Our promise is that your experience with AIA will surpass your expectations.<br />ABACUS INSURANCE ADVISORS, LLC<br />You Can Count On Us.<br />Phone 864.672.1400<br />Toll Free 877.672.1401<br />Fax 864.281.9662<br />Website www.abacusinsadvisors.com<br />109 Block House Road<br />Greenville, SC 29615<br />Abacus Insurance Advisors, LLC is an insurance marketing subsidiary of Asset Management, Inc. Neither Abacus Insurance Advisors, nor its employees or agents are authorized to give legal, accounting or tax advice. You should consult your own legal or tax professional regarding the purchase of any life insurance policy.<br />For Producer Use Only<br />