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The Power of Life Insurance The Impact of Tax-Free Death Benefit What is it? Life insurance death benefit proceeds are generally received on an income tax-free basis. If the life insurance policy is owned by an Irrevocable Life Insurance Trust, they can also be generally received estate tax-free. To match these results would require higher rate of return and possibly greater risk in an invest that would be subject to income taxes or estate taxes. How does it work? Client Cash Gifts to Fund Premiums Irrevocable Life Insurance Trust (ILIT) Life Insurance Policy Death Benefit Heirs Premium Payments Life Insurance Company Any information in this report should not be used in any actual transaction without the advice and guidance of a professional Tax Advisor and/or Attorney. Although the information contained here is presented in good faith, it is General in nature and may not be applicable to or suitable for the individual’s specific circumstances or needs and may require additional consideration of other matters. This report is for informational purposes only. It does not constitute a contract or guarantee. Please refer to the insurance company full illustrations for complete details. Any information in this report should not be used in any actual transaction without the advice and guidance of a professional Tax Advisor and/or Attorney. Although the information contained here is presented in good faith, it is General in nature and may not be applicable to or suitable for the individual’s specific circumstances or needs and may require additional consideration of other matters. Page 1 of 2 The Power of Life Insurance The Impact of Tax-Free Death Benefit Male 60, Preferred Nonsmoker, Female 60, Preferred Nonsmoker. Guaranteed SUL. 60 Premium Payment(s). State of PA. Death Benefit Guaranteed to Age 120. Guaranteed crediting rate of 3.0% You Pay $9,862 Heirs Receive $1,000,000 Annual Premium Death Benefit Annual Premium Payment Made Over 60 Yr(s) Life Insurance Internal Rate of Return (IRR) at Death - 5 Years Life Expectancy +5 Years Age(s) 85 | 85 Ages(s) 90 | 90 Age(s) 95 | 95 9.59% 7.02% 5.31% Calculating The “Taxable Equivalent Return” What gross rate of return in an account subject to taxes would be needed to match the rate of return of the life insurance? Subject to: 20% Capital Gains Tax - 5 Years Life Expectancy +5 Years Age(s) 85 | 85 Ages(s) 90 | 90 Age(s) 95 | 95 11.82% 9.71% 6.59% Subject to: 40% Estate Tax - 5 Years Life Expectancy +5 Years Age(s) 85 | 85 Ages(s) 90 | 90 Age(s) 95 | 95 15.90% 11.62% 8.78% If the account was subject to both income and estate taxes then the return if needs to match the life insurance IRR would be even higher then those shown above. That’s The “Power of Life Insurance” Taxable equivalent return calculated as the insurance IRR at death divided by 1 minus the tax rate. The tax rates illustrated are purely hypothetical and for illustrative purposes only. The actual tax rate may be different. Guarantees are based on the claims paying ability of the issuing insurance company For illustrative purposes only, does not reflect an actual life insurance policy. Page 2 of 2