Universal Life (UL) vs. Various Financial Alternatives For: Partner #1- Sell Business
Presented By: Daniel P. Wachs CFP, ChFC, CLU 1431 Opus Place #630 Downers Grove, Illinois 60515 Phone: 630-445-1399 Email: dwachs@perpetualwm.com
Various Financial Alternatives vs. TBD Presented By: Daniel Wachs
Insured: Partner #1
Comparison of Values Municipal Bond Fund Yield 5.50%
Equity Account Growth 5.00%
Equity Account Dividend 1.50%
Dividend Tax Rate 20.00%
Annuity Yield 6.50%
Income Tax Rate 35.00%
TBD Interest Rate 6.50%
Initial Death Benefit 10,515,240
After Tax Values of Identical Allocation to Various Financial Alternatives (1)
Male Yr Age
Life Insurance Premium
(2a) After Tax Cash Flow from Municipal Bond Fund
(2b)
Municipal Bond Fund
(3a) After Tax Cash Flow from Equity Account
(3b)
(4a)
Equity Account
After Tax Cash Flow from Annuity
TBD
(4b)
(5a)
(5b)
(5c)
Annuity
After Tax Policy Loan Proceeds
Year End Cash Value*
Death Benefit
1 2 3 4 5 6 7 8 9 10
51 52 53 54 55 56 57 58 59 60
23,499 49,789 76,254 102,138 128,544 156,347 185,662 187,698 189,734 191,363
0 0 0 0 0 0 0 0 0 0
24,543 77,636 160,731 274,553 421,015 603,026 823,746 1,056,403 1,301,527 1,559,249
0 0 0 0 0 0 0 0 0 0
24,595 77,803 161,051 275,013 421,531 603,427 823,761 1,055,586 1,299,290 1,554,882
0 0 0 0 0 0 0 0 0 0
24,329 76,752 158,478 269,993 412,965 590,047 804,131 1,028,425 1,263,448 1,509,321
0 0 0 0 0 0 0 0 0 0
160,740 715,942 1,306,416 1,934,167 2,602,073 3,313,542 4,129,155 4,413,504 4,714,365 5,033,483
10,515,240 11,063,742 11,647,416 12,268,267 12,929,173 13,633,542 14,385,155 14,605,504 14,842,365 15,097,483
11 12 13 14 15 16 17 18 19 20
61 62 63 64 65 66 67 68 69 70
193,805 195,027 98,328 4,071,542 0 0 0 0 0 0
0 0 0 0 0 0 0 0 800,000 800,000
1,830,977 2,116,060 2,312,818 6,668,144 6,964,543 7,274,117 7,597,452 7,935,158 7,452,316 6,948,012
0 0 0 0 0 0 0 0 800,000 800,000
1,823,664 2,104,884 2,296,550 6,654,244 6,944,163 7,240,770 7,546,152 7,861,862 7,349,353 6,813,289
0 0 0 0 0 0 0 0 800,000 800,000
1,767,445 2,037,178 2,217,745 6,519,833 6,762,909 7,019,196 7,289,413 7,574,317 7,031,224 6,458,615
0 0 0 0 0 0 0 0 800,000 800,000
5,451,618 5,828,939 6,250,422 6,703,242 7,190,110 7,713,685 8,277,071 8,884,172 8,692,338 8,500,047
15,451,618 15,828,939 10,000,000 10,000,000 10,000,000 10,000,000 10,000,000 10,394,481 10,217,512 10,033,354
21 22 23 24 25 26 27 28 29 30
71 72 73 74 75 76 77 78 79 80
0 0 0 0 0 0 0 0 0 0
800,000 800,000 800,000 800,000 800,000 800,000 800,000 800,000 800,000 800,000
6,421,291 5,871,157 5,296,570 4,696,443 4,069,640 3,414,975 2,731,211 2,017,053 1,271,151 492,094
800,000 800,000 800,000 800,000 800,000 800,000 800,000 800,000 800,000 800,000
6,253,498 5,669,488 5,060,549 4,425,826 3,764,350 3,075,068 2,356,856 1,608,528 828,836 16,474
800,000 800,000 800,000 800,000 800,000 800,000 800,000 800,000 800,000 228,199
5,858,520 5,237,225 4,593,982 3,928,014 3,238,519 2,524,666 1,785,594 1,020,412 228,199 0
800,000 800,000 800,000 800,000 800,000 800,000 800,000 800,000 800,000 800,000
8,308,913 8,120,194 7,935,509 7,756,848 7,586,708 7,422,379 7,265,141 7,116,208 6,976,911 6,848,627
9,733,325 9,411,671 9,067,442 8,699,779 8,308,007 8,194,560 8,091,514 8,000,290 7,922,441 7,859,578
5,849,730
9,600,000
9,600,000
9,028,199
See the accompanying reports for year-by-year details: Details of the: Equity Account; Portfolio Turnover Annuity Details
Note: Annuity values do not reflect surrender charges or market rate adjustments, if any.
Management fees reflected in columns (2b), (3b) & (4b): MB = 1.00%, EA = 1.00%, AN = 1.00%
*This illustration assumes the nonguaranteed values shown continue in all years. This is not likely, and actual results may be more or less favorable. This illustration is not valid unless accompanied by a proposal from TBD.
Date: 03/03/2018
9,600,000
Annuity is assessed: Income tax each year. Column (4b) values are after tax.
Page 1 of 11
Various Financial Alternatives vs. TBD Presented By: Daniel Wachs
Insured: Partner #1
Comparison of Values Municipal Bond Fund Yield 5.50%
Equity Account Growth 5.00%
Equity Account Dividend 1.50%
Dividend Tax Rate 20.00%
Annuity Yield 6.50%
Income Tax Rate 35.00%
TBD Interest Rate 6.50%
Initial Death Benefit 10,515,240
After Tax Values of Identical Allocation to Various Financial Alternatives (1)
Male Yr Age
Life Insurance Premium
(2a) After Tax Cash Flow from Municipal Bond Fund
(2b)
Municipal Bond Fund
(3a) After Tax Cash Flow from Equity Account
(3b)
(4a)
Equity Account
After Tax Cash Flow from Annuity
TBD
(4b)
(5a)
(5b)
(5c)
Annuity
After Tax Policy Loan Proceeds
Year End Cash Value*
Death Benefit
31 32 33 34 35 36 37 38 39 40
81 82 83 84 85 86 87 88 89 90
0 0 0 0 0 0 0 0 0 0
492,094 0 0 0 0 0 0 0 0 0
0 0 0 0 0 0 0 0 0 0
16,210 0 0 0 0 0 0 0 0 0
0 0 0 0 0 0 0 0 0 0
0 0 0 0 0 0 0 0 0 0
0 0 0 0 0 0 0 0 0 0
800,000 800,000 800,000 800,000 800,000 800,000 800,000 800,000 800,000 800,000
6,730,878 6,624,300 6,529,349 6,445,854 6,372,292 6,308,945 6,253,960 6,204,315 6,156,207 6,104,089
7,811,367 7,778,657 7,762,116 7,761,761 7,776,202 7,805,953 7,849,296 7,903,301 7,964,226 8,026,512
41 42 43 44 45 46 47 48 49
91 92 93 94 95 96 97 98 99
0 0 0 0 0 0 0 0 0
0 0 0 0 0 0 0 0 0
0 0 0 0 0 0 0 0 0
0 0 0 0 0 0 0 0 0
0 0 0 0 0 0 0 0 0
0 0 0 0 0 0 0 0 0
0 0 0 0 0 0 0 0 0
800,000 800,000 800,000 800,000 800,000 800,000 800,000 800,000 800,000
6,096,589 6,153,922 6,303,631 6,582,038 7,032,549 7,572,625 8,211,756 8,960,280 9,829,457
7,732,516 7,459,990 7,231,518 7,077,211 7,032,549 7,572,625 8,211,756 8,960,280 9,829,457
5,849,730
10,092,094
9,616,210
9,028,199
See the accompanying reports for year-by-year details: Details of the: Equity Account; Portfolio Turnover Annuity Details
Note: Annuity values do not reflect surrender charges or market rate adjustments, if any.
Management fees reflected in columns (2b), (3b) & (4b): MB = 1.00%, EA = 1.00%, AN = 1.00%
*This illustration assumes the nonguaranteed values shown continue in all years. This is not likely, and actual results may be more or less favorable. This illustration is not valid unless accompanied by a proposal from TBD.
Date: 03/03/2018
24,800,000
Annuity is assessed: Income tax each year. Column (4b) values are after tax.
Page 2 of 11
Various Financial Alternatives vs. TBD Presented By: Daniel Wachs
Insured: Partner #1
Matching Values at Age 99 (Year 49) Municipal Bond Fund Yield 5.50%
Equity Account Growth 5.00%
Equity Account Dividend 1.50%
Dividend Tax Rate 20.00%
Annuity Yield 6.50%
Income Tax Rate 35.00%
TBD Interest Rate 6.50%
Initial Death Benefit 10,515,240
Yield/Growth Required by Various Investments in Addition to the Dividend Illustrated for the Equity Account to Match TBD Policy Values over 49 years
Investment
Yield/Growth
Municipal Bond Fund Municipal Bond Fund
9.38% 9.38%
Cash Value $9,829,457 Death Benefit $9,829,457
Equity Account Equity Account
10.39%* 10.39%*
Cash Value $9,829,457 Death Benefit $9,829,457
Annuity Annuity
11.98% 11.98% *Plus 1.50% dividend.
Cash Value $9,829,457 Death Benefit $9,829,457
Municipal Bond Fund
$9,829,457
$9,829,457
937.76% Required To Match CV
9.38% Required To Match DB
TBD
Equity Account
$9,829,457
$9,829,457
1039.19% Required To Match CV
10.39%* Required To Match DB
Annuity $9,829,457
$9,829,457
1198.04% Required To Match CV
11.98% Required To Match DB
*Plus 1.50% dividend.
Income Tax Considerations 1. Municipal Bond Fund: Interest is tax exempt. 2. Equity Account: Capital gains tax calculations are taxed based on a ratio of asset value to remaining cost basis in any given year. 3. Annuity: Interest is tax deferred. (Values assume tax is assessed in year shown only) 4. TBD: a. Death Benefit including cash value component is income tax free. b. Loans are income tax free as long as the policy is kept in force. c. Withdrawals and other non-loan policy cash flow up to cost basis (not in violation of IRC Section 7702) are income tax free as a return of premium. d. Cash values shown assume most favorable combination of b and/or c. This illustration assumes the nonguaranteed values shown continue in all years. This is not likely, and actual results may be more or less favorable. This illustration is not valid unless accompanied by a proposal from TBD.
Date: 03/03/2018
Page 3 of 11
Various Financial Alternatives vs. TBD Presented By: Daniel Wachs
Insured: Partner #1
Net Rate of Return Comparison
Municipal Bond Fund Yield 5.50%
Equity Account Growth 5.00%
Equity Account Dividend 1.50%
Dividend Tax Rate 20.00%
Annuity Yield 6.50%
Income Tax Rate 35.00%
Net Rate of Return of After Tax Values
Male
(1)
(2)
Municipal
Equity
Initial Death Benefit 10,515,240
Net Rate of Return of TBD Values (3)
(4) Year End Cash
(5) Death
1 2 3 4 5 6 7 8 9 10
51 52 53 54 55 56 57 58 59 60
4.45 4.45 4.45 4.45 4.45 4.45 4.45 4.45 4.45 4.45
4.67 4.61 4.57 4.53 4.50 4.47 4.45 4.42 4.40 4.38
3.53 3.55 3.57 3.58 3.60 3.61 3.63 3.65 3.67 3.68
584.04 356.11 199.51 131.35 95.33 73.59 59.75 46.46 37.38 30.92
44648.33 1966.49 614.26 315.02 198.99 140.46 106.12 82.79 66.80 55.31
11 12 13 14 15 16 17 18 19 20
61 62 63 64 65 66 67 68 69 70
4.45 4.45 4.45 4.45 4.45 4.45 4.45 4.45 4.45 4.45
4.36 4.34 4.33 4.38 4.37 4.35 4.33 4.31 4.29 4.26
3.70 3.72 3.74 3.72 3.72 3.73 3.75 3.77 3.78 3.77
26.47 22.89 20.49 4.61 5.22 5.60 5.86 6.06 6.22 6.35
46.84 40.34 27.84 15.57 12.63 10.50 8.92 8.27 8.08 7.94
21 22 23 24 25 26 27 28 29 30
71 72 73 74 75 76 77 78 79 80
4.45 4.45 4.45 4.45 4.45 4.45 4.45 4.45 4.45 4.45
4.24 4.23 4.21 4.20 4.19 4.18 4.16 4.16 4.15 4.14
3.75 3.74 3.73 3.72 3.71 3.71 3.71 3.71 3.71 n/a
6.47 6.57 6.67 6.77 6.86 6.95 7.03 7.11 7.19 7.26
7.75 7.59 7.46 7.35 7.26 7.33 7.39 7.46 7.52 7.58
*This illustration assumes the nonguaranteed values shown continue in all years. This is not likely, and actual results may be more or less favorable. This illustration is not valid unless accompanied by a proposal from TBD.
Date: 03/03/2018
TBD Interest Rate 6.50%
Page 4 of 11
Various Financial Alternatives vs. TBD Presented By: Daniel Wachs
Insured: Partner #1
Net Rate of Return Comparison
Municipal Bond Fund Yield 5.50%
Equity Account Growth 5.00%
Equity Account Dividend 1.50%
Dividend Tax Rate 20.00%
Annuity Yield 6.50%
Income Tax Rate 35.00%
Net Rate of Return of After Tax Values
Male
(1)
(2)
Municipal
Equity
Initial Death Benefit 10,515,240
Net Rate of Return of TBD Values (3)
(4) Year End Cash
(5) Death
31 32 33 34 35 36 37 38 39 40
81 82 83 84 85 86 87 88 89 90
n/a N/A N/A N/A N/A N/A N/A N/A N/A N/A
n/a N/A N/A N/A N/A N/A N/A N/A N/A N/A
N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A
7.34 7.41 7.47 7.54 7.59 7.65 7.70 7.75 7.80 7.84
7.64 7.70 7.76 7.81 7.86 7.91 7.95 7.99 8.03 8.06
41 42 43 44 45 46 47 48 49
91 92 93 94 95 96 97 98 99
N/A N/A N/A N/A N/A N/A N/A N/A N/A
N/A N/A N/A N/A N/A N/A N/A N/A N/A
N/A N/A N/A N/A N/A N/A N/A N/A N/A
7.88 7.92 7.97 8.02 8.08 8.13 8.19 8.24 8.28
8.05 8.05 8.05 8.06 8.08 8.13 8.19 8.24 8.28
*This illustration assumes the nonguaranteed values shown continue in all years. This is not likely, and actual results may be more or less favorable. This illustration is not valid unless accompanied by a proposal from TBD.
Date: 03/03/2018
TBD Interest Rate 6.50%
Page 5 of 11
Various Financial Alternatives vs. TBD Presented By: Daniel Wachs
Insured: Partner #1
Pre-Tax Equivalent Rate of Return Comparison
Municipal Bond Fund Yield 5.50%
Equity Account Growth 5.00%
Equity Account Dividend 1.50%
Dividend Tax Rate 20.00%
Annuity Yield 6.50%
Income Tax Rate 35.00%
Pre-Tax Equivalent Rate of Return of Pre-Tax Values
Male
(1)
(2)
(3)
Municipal
Equity
Initial Death Benefit 10,515,240
Pre-Tax Equivalent Rate of Return of TBD Values (4) Year End Cash
(5)
1 2 3 4 5 6 7 8 9 10
51 52 53 54 55 56 57 58 59 60
6.84 6.84 6.84 6.84 6.84 6.84 6.84 6.84 6.84 6.84
7.18 7.10 7.03 6.97 6.92 6.88 6.84 6.80 6.77 6.74
5.44 5.46 5.49 5.51 5.54 5.56 5.59 5.61 5.64 5.67
898.52 547.86 306.94 202.08 146.66 113.22 91.92 71.47 57.51 47.57
68689.74 3025.38 945.01 484.65 306.14 216.09 163.26 127.37 102.77 85.09
11 12 13 14 15 16 17 18 19 20
61 62 63 64 65 66 67 68 69 70
6.84 6.84 6.84 6.84 6.84 6.84 6.84 6.84 6.84 6.84
6.71 6.68 6.66 6.74 6.73 6.70 6.66 6.63 6.59 6.56
5.70 5.73 5.76 5.72 5.72 5.74 5.77 5.81 5.81 5.79
40.72 35.22 31.53 7.10 8.03 8.62 9.02 9.32 9.57 9.77
72.06 62.06 42.83 23.96 19.43 16.15 13.73 12.72 12.43 12.22
21 22 23 24 25 26 27 28 29 30
71 72 73 74 75 76 77 78 79 80
6.84 6.84 6.84 6.84 6.84 6.84 6.84 6.84 6.84 6.84
6.53 6.50 6.48 6.46 6.44 6.42 6.41 6.39 6.38 6.36
5.77 5.75 5.73 5.72 5.71 5.71 5.70 5.70 5.70 n/a
9.95 10.11 10.26 10.41 10.55 10.68 10.81 10.94 11.06 11.17
11.92 11.68 11.48 11.31 11.17 11.27 11.37 11.47 11.57 11.67
*This illustration assumes the nonguaranteed values shown continue in all years. This is not likely, and actual results may be more or less favorable. This illustration is not valid unless accompanied by a proposal from TBD.
Date: 03/03/2018
TBD Interest Rate 6.50%
Page 6 of 11
Various Financial Alternatives vs. TBD Presented By: Daniel Wachs
Insured: Partner #1
Pre-Tax Equivalent Rate of Return Comparison
Municipal Bond Fund Yield 5.50%
Equity Account Growth 5.00%
Equity Account Dividend 1.50%
Dividend Tax Rate 20.00%
Annuity Yield 6.50%
Income Tax Rate 35.00%
Pre-Tax Equivalent Rate of Return of Pre-Tax Values
Male
(1)
(2)
(3)
Municipal
Equity
Initial Death Benefit 10,515,240
Pre-Tax Equivalent Rate of Return of TBD Values (4) Year End Cash
(5)
31 32 33 34 35 36 37 38 39 40
81 82 83 84 85 86 87 88 89 90
n/a N/A N/A N/A N/A N/A N/A N/A N/A N/A
n/a N/A N/A N/A N/A N/A N/A N/A N/A N/A
N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A
11.29 11.39 11.50 11.59 11.68 11.77 11.85 11.93 11.99 12.06
11.76 11.85 11.93 12.02 12.09 12.16 12.23 12.29 12.35 12.40
41 42 43 44 45 46 47 48 49
91 92 93 94 95 96 97 98 99
N/A N/A N/A N/A N/A N/A N/A N/A N/A
N/A N/A N/A N/A N/A N/A N/A N/A N/A
N/A N/A N/A N/A N/A N/A N/A N/A N/A
12.12 12.19 12.26 12.34 12.43 12.51 12.59 12.67 12.74
12.38 12.38 12.39 12.40 12.43 12.51 12.59 12.67 12.74
*This illustration assumes the nonguaranteed values shown continue in all years. This is not likely, and actual results may be more or less favorable. This illustration is not valid unless accompanied by a proposal from TBD.
Date: 03/03/2018
TBD Interest Rate 6.50%
Page 7 of 11
Various Financial Alternatives vs. TBD Presented By: Daniel Wachs
Insured: Partner #1
Taxation of Annuity Cash Flow With deferred annuities, withdrawals (partial surrenders) are taxable until gain is exhausted. Due to this, cash flow illustrated from the deferred annuity in this presentation is the after tax result of withdrawals of a higher amount. With cash value life insurance policies, withdrawals (also known as partial surrenders) are income-tax free up to cost basis and taxable thereafter. Policy loans are income-tax free so long as the policy stays in force until death. The source of the cash flow from the life insurance policy in this presentation is policy loans. Note: Policy loans reduce policy cash values and death benefits, and the lapse of a loaned policy could result in severe tax ramifications to the policy owner. Be sure to consult a professional tax adviser if you have any questions about this issue.
Cash Flow Analysis In Year 19 Below is an analysis of tax calculations on cash flow in the first year that cash flow from the Tax Deferred Account and TBD is illustrated.
Tax Deferred Account +
$1,230,769 $0 $1,230,769
gain in contract withdrawn @ 35.00% tax to net $800,000 additional non-taxed withdrawal to net + $0 total withdrawal which nets, after tax
$800,000
TBD There are no tax calculations required for the life insurance policy since policy loans are not taxable
Annuity surrender charges, if any, will further reduce annuity values.
Date: 03/03/2018
Page 8 of 11
Various Financial Alternatives vs. TBD Presented By: Daniel Wachs
Insured: Partner #1
Taxation of Equity Account Cash Flow With equity accounts, dividends are taxed and the after tax balance is either reinvested or used for scheduled cash flow. Capital gains tax calculations are based upon a ratio of asset value to remaining cost basis in any given year. With cash value life insurance policies, withdrawals (also known as partial surrenders) are income-tax free up to cost basis and taxable thereafter. Policy loans are income-tax free so long as the policy stays in force until death. The source of the cash flow from the life insurance policy in this presentation is policy loans. Note: Policy loans reduce policy cash values and death benefits, and the lapse of a loaned policy could result in severe tax ramifications to the policy owner. Be sure to consult a professional tax adviser if you have any questions about this issue.
Date: 03/03/2018
Page 9 of 11
Various Financial Alternatives vs. TBD Presented By: Daniel Wachs
Insured: Partner #1
Tax Calculations The tax deferred investment illustrated in the accompanying material reflects after tax values. Since withdrawals are taxable until any gain is exhausted, account values are illustrated on an after tax basis. With equity accounts, dividends are taxed and the after tax balance is either reinvested or used for scheduled cash flow. Capital gains tax calculations are based upon a ratio of asset value to remaining cost basis in any given year. A cash value life insurance policy (that is not designed as a modified endowment contract*) is taxed on a first-in-first-out basis which means that withdrawals (also known as partial surrenders) have different taxation. Withdrawals up to cost basis are income-tax free; subsequent withdrawals are taxable. However, contractual loan provision in the policy allow you to access additional cash flow from the policy cash value which is income-tax free so long as the policy stays in force. This feature avoids the problem of taxable withdrawals in excess of cost basis. Interest on such loans can be added to the outstanding loan, and with most life insurance policies, the loan balance is credited with interest earnings at (or near) the level of the loan interest charged resulting in a wash (or near wash) of the loan interest. If the policy is kept in force until death, the policy death benefit, including any internal deferred gain, is income-tax free. Policy loans reduce policy cash values and death benefits, and the lapse of a loaned policy could result in severe tax ramifications to the policy owner. Be sure to consult a professional tax adviser if you have any questions about this. *With a life insurance policy that is characterized as a modified endowment contract ("MEC"), both withdrawals and loans are taxed on a gain first basis. In almost all circumstances, it is advisable to avoid purchasing a MEC, and the basic illustration that is provided to you from the issuing life insurance company should indicate if it is a MEC. Legal and tax information is for general use only and may not be applicable to specific circumstances. Clients should consult their own legal, tax and accounting advisors to assist in the evaluation of any potential transaction or strategy.
Date: 03/03/2018
Page 10 of 11
Various Financial Alternatives vs. TBD Presented By: Daniel Wachs
Insured: Partner #1
A Look at Year 49
Various Financial Alternatives
TBD
Cumulative Payments
5,849,730
5,849,730
Cumulative After Tax Cash Flow 24,800,000 10,092,094
9,616,210
9,028,199
MB
AN
9,829,457 Value
0
0
Cash Value
9,829,457
0 Death Benefit MB Value
AN Value
MB - Municipal Bond Fund - Equity Account AN - Annuity
Date: 03/03/2018
Page 11 of 11