A Planning Strategy for Grandparents

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ING Indexed Universal LifeGlobal Plus (ING IUL-Global Plus)

Issued by Security Life of Denver Insurance Company
Grandparents today are increasingly concerned for the financial futures of their children and their grandchildren. The recent headlines concerning Social Security solvency and the federal government debt levels have them concerned for their grandchildrens financial future. They would like to know that their grandchildren are financially provided for and that they will be able to have access to tax advantaged cash for retirement or other life events. Grandparents generally would like to limit or avoid the gift taxes involved in any planning.

Client Profile
Situation: James and Linda Best are enjoying their retirement and have a 35 year old grandson, Dave, with a growing family. Dave currently needs additional life insurance protection for his family and the grandparents want to assist him with that purchase and give him financial options later in life no matter what the future holds. In addition, the grandparents would like to avoid paying gift taxes or generation skipping taxes on any transfers. Possible Solution: Funding an ING Indexed Universal Life-Global Plus (ING IUL-Global Plus) policy on their grandsons life. Policy Design: Male, age 35, Preferred Non Tobacco $3,500,000 death benefit Death Benefit Option 2 during premium paying years Premiums of $104,703 paid for ten years Illustrated rate 8.63% assumed, 100% of funds elected to the indexed strategy Select Loans illustrated Premium Finance Loan: Loan rate of 5% assumed Loan interest paid up to the gifting limit of $26,000 Remainder of interest accrued Premium finance loan repaid from policy values year 11

Leveraged Generational Planning Providing for the next generations financial security in an uncertain world
How Does it Work?
1. Grandson, Dave, applies for a $3,500,000 ING IUL-Global Plus life insurance policy. 2. Grandparents, James and Linda (with their grandson Dave) enter into a premium finance arrangement with a lender. 3. The policy is assigned (by Dave) to the premium finance lender as collateral. 4. James and Linda assign additional assets as collateral for the loan. 5. Interest payments are made by James and Linda on the loan up to a maximum of $26,000 per year. 6. In year 10 the loan is repaid using policy values and the policy assignment is removed.

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Year 1 5 10

Annual Premium $104,703 $104,703 $104,703

Cumulative Lender Loan $104,703 $523,691 $1,132,188

Lender Loan Interest Owed $5,235 $26,176 $55,152

Net Outlay $5,235 $26,000 $26,000

Net Surrender Value $57,541 $453,238 $1,238,953

Net Death Benefit After Lender Loan Repayment $3,479,263 $3,454,152 $3,606,765

As you can see, since the clients want to limit their gifting to the annual exclusion (both grandparents can currently gift $13,000 each) some of the interest is assumed to accrue which results in the cumulative loan being greater than the cumulative premiums. If the annual exclusion amount increased in the future, they could, of course, increase their interest payments which would result in a higher death benefit for their grandsons family. The policy is assigned to the premium finance vendor and additional assets are assigned as collateral for the life of the loan.

Year 1 5 10 Total

Annual Premium $104,703 $104,703 $104,703 $1,047,030

Cumulative Lender Loan $104,703 $523,691 $1,132,188 $1,132,188

Lender Lender Loan Lender Fees/Interest Paid Interest Owed Interest Accrued out of Pocket $5,235 $26,176 $55,152 $293,510 $0 $176 $29,152 $85,158 $5,235 $26,000 $26,000 $208,352

Collateral Value of Additional Collateral Cash Surrender Required at 100% Value @ 100% $57,471 $417,192 $1,140,883 $1,140,883 $47,232 $106,499 $0 $0

This design assumes the grandson owns the life insurance policy and consequently is part of the loan arrangement to the extent of assigning the policy and distributing the funds to repay the loan from policy values. Some premium finance vendors will require a bankruptcy remote ownership of a life insurance policy. In that case the policy could be owned by a trust, until after the loan is repaid, at which time the policy could be distributed to the grandson as trust proceeds. In year 10, the loan of $1,132,188 is repaid from policy values. This would, under our assumptions, leave a death benefit of $2,299,881 and a cash surrender value of $148,768. By age 65 the policy is projected to grow to a death benefit of $4,079,925 and cash surrender value of $2,689,416. At age 100, the death benefit and cash surrender value is projected to be $81,401,434.
These values are based on an illustrated rate of 8.63%, 100% election to the indexed strategy and current charges. Assuming the guaranteed minimum interest rate of 1% and guaranteed charges this policy would lapse in year 15.

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The grandson now has an asset that he can use in many ways. He can leave the policy in place for death benefit needs. He could use some of the funds to pay for his childrens college expenses or a down payment on a house. He could also use the policy to provide additional retirement income. If he retired at age 65, he could potentially distribute $445,662 for thirty years a total of over $13,000,000. After those distributions, the policy is still projected to have a net death benefit of $10,485,619 at age 95.
Year 31 40 50 60 Total End of Year Age 66 75 85 95 Premium Outlay (distribution) $445,662 $445,662 $445,662 $445,662 $13,369,860 Account Value $6,434,918 $12,332,811 $27,895,997 $62,294,630 Net Surrender Value $2,585,972 $1,402,689 $2,095,183 $9,862,673 Net Death Benefit $3,872,956 $2,265,986 $3,489,983 $10,485,619

These values are based on an illustrated rate of 8.63%, 100% election to the indexed strategy and current charges. Assuming the guaranteed minimum interest rate of 1% and guaranteed charges this policy would lapse in year 39.

Conclusion
So what potentially have James and Linda done for Dave and his family? They have paid for a life insurance policy using a premium financing strategy, which potentially cost them only $208,352 out of pocket over ten years, and assigning some of their assets to the lender during while the loan was in place. Their grandson has a valuable asset that he can use for his familys benefit whether the need is for a death benefit during his working years or providing valuable cash flow for family needs such as retirement or college expenses. The grandparents are now more assured knowing that their grandchild will have financial options no matter what the future brings.

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For more information, please contact your ING Life Companies representative or call ING Insurance Sales Support at 1-866-ING-SELL (866-464-7355). www.inglifeinsurance.com

Not FDIC/NCUA Insured Not A Deposit Of A Bank Not Bank Guaranteed

May Lose Value Not Insured By Any Federal Government Agency

Neither ING nor its affiliated companies or its representatives give tax or legal advice. Your clients should consult with their legal advisors regarding their individual situation. These materials are not intended to be used to avoid tax penalties, and were prepared to support the promotion or marketing of the matter addressed in this document. The taxpayer should seek advice from an independent tax advisor. ING IUL-Global Plus, policy form series #1182-12/10 with an equity indexed feature, varies by state and may not be available in every state. It is issued by Security Life of Denver Insurance Company, a member of the ING family of companies. Not available in New York. The cost of insurance rates, policy expense charges, Fixed Strategy interest rate, index cap, and participation rate are subject to change. All guarantees are based on the financial strength and claims paying ability of Security Life of Denver Insurance Company which is solely responsible for the obligations under its own policies. 2012 ING North America Insurance Corporation CN0621-3252-0614

164920 07/25/2012

For agent use only. Not for public distribution.