For producer use only. Not for distribution to the public. TRANSLINK ® TRANSAMERICA’S LENDING INSTITUTION NETWORK PROPRIETARY PREMIUM FINANCE PLATFORM.

For producer use only.Not for distribution to the public.

TRANSLINK®

TRANSAMERICA’S LENDING INSTITUTION NETWORK PROPRIETARY PREMIUM FINANCE PLATFORM


• Premium Financing is an alternative insurance funding method for high-net-worth individuals to pay life insurance premiums without liquidating high-performing assets

• Premium Financing is not an alternative to having sufficient funds to pay for a life insurance policy

What Is Premium Financing?


Borrowing premiums allows current investments to remain intact• There may be tax and economic consequences

associated with liquidating the assets

• The continued growth of assets may be a better use of money

May reduce annual gifting requirements• Premium financing could be one possible strategy

to reduce annual gifting

Why Premium Financing?


Consistent messages from affluent clients: • “I make an excellent rate of return on my money in my

own business, so it doesn’t make sense to use capital for large premiums to a life insurance company.”

• “My money is tied up in highly profitable investments.”

• “I’d prefer not to sell off my assets to pay the premiums for the coverage that I need.”

The Problem


Premium financing allows clients to: • Purchase the life insurance needed to accomplish

their financial goals

• Borrow the premiums and pay back the loan using the death benefit or another exit strategy

• Keep high-performing investments in place without having to liquidate capital to pay premiums

The Solution


A step-by-step program designed to:• Offer a customized solution to high-net-worth clients

• Allows you to focus on insurance

• Eliminates the need for intermediaries

• Offers case management from A - Z

What is TransLINK®


A unique program that simplifies a complex transaction• A preferred group of lenders

• Case design support with customized premium financing proposals

• Consultation with client’s financial and/or legal advisors

• On-going annual loan renewal assistance

• No commission splitting

TransLINK® Benefits


• Individuals ages 40 to 80 with net worth greater than $5 million (excluding primary residence)

• Business owners or individuals with unencumbered, illiquid assets

• Life insurance need with annual premium of $100,000 or more

• Comfortable with leverage and borrowing premium

TransLINK® Candidates


Client Access is Vital• Need financial statements

and tax returns

• Access to other advisors

TransLINK® Candidates


How It Works

Insured/Borrower: (Individual, ILIT,

Corporation, Partnership, or

LLC)

Insurance CarrierPremium Finance

Lender

(1b) Applies for a loan, pays loan interest and

provides collateral

(2b) Lender underwrites and extends a loan to the borrower, sends premiums

to the insurance carrier

(1a) Applies for life insurance policy

(2a) Carrier underwrites & issues the policy

(3b) Carrier adds lender as collateral

assignee on the policy

Beneficiary(ies)

(4) At the policy owner’s death, beneficiary(ies) receives the death

proceeds (net after loan repayment).

(3a) Lender approves loan and sends premiums to the insurance carrier


Phase 1 – Prequalification• Identify an opportunity

• Begin TransLINK consultation

• Collect Fact Finder data

• Identify appropriate collateral

• Client commits to process

TransLINK® Process


Phase 2 – Case Design• Submit Fact Finder

• Develop personalized report and illustration

• Explore lender options

TransLINK® Process (cont.)


Phase 3 – Case Management• Submit life insurance application

• Submit loan package

• Communicate loan status with all parties

• Facilitate lending process – close and pay case

• Assist with on-going loan renewal process

TransLINK® Process (cont.)


Interest Paid Annually• The loan is for the amount of premiums only

• The client pays the interest in advance or in arrears to the lender with his/her own funds

Loan Interest Payment Options


Interest Deferral• For qualified borrowers, loan interest may be deferred

at the discretion of the lender for a specified period

• Accrued interest is added to loan principal

• Interest deferral may be available for a specified period (e.g., 5 years), not for the life of the loan

• Deferring interest can cause the cumulative loan amount to exceed the death benefit, leaving no death benefit available to the beneficiary(ies)

Loan Interest Payment Options (cont.)


• The rate charged is made up of two components:

1. Current prime rate or London Interbank Offered Rate (LIBOR)

2. A spread that is determined by the lender, typically 100-250 basis points

• An option to cap the interest rate for an additional fee may be available, if qualified

• Generally, larger loans receive more favorable rates

• Loans are renewed annually

• Lenders may charge a loan origination fee or other fees that will increase the total cost of borrowing

Interest Rates and Loan Structure


Loan interest is generally not tax deductible• Individual taxpayers generally cannot deduct personal

loan interest

• IRC Section 264 disallows deductions of interest for loans greater than $50,000 to finance business owned policies on the lives of officers or employees

Loan Interest Deductibility


Acceptable collateral will vary by lender. Lenders usually prefer certain types of collateral over others, and may allow:• Loans must be fully collateralized• 100% of the cumulative loan balance is collateralized

by the policy cash value and other pledged assets• Cash• Letters of credit• CDs• Policy cash surrender value• Traded securities (50% valuation)• Personal guarantees• Government bonds

Loan Collateral


Policies owned outside the insured’s estate that are premium financed may eliminate the need to gift the entire premium• Only loan interest and collateral may need to be gifted

• The loan interest may create gift tax liability if it exceeds available exclusions and exemptions

Interest deferral increases the gifting leverage• No need to gift premium or loan interest

• Creates a balloon note

Gift Tax Leveraging


Death of the Insured• Generally, simplest, most straightforward option

depending on the age of the insured

• May need to reconsider if interest is deferred or loan costs increase

Cash Value• With lender approval, withdraw cash from the policy's

cash surrender value to pay back all, or a portion of, the loan balance

Loan Repayment Strategies


Loan Repayment via Outside Funds—If Liquidity Event Occurs• Liquidation of a business interest or other existing assets

• Grantor Retained Annuity Trust (GRAT)

• Charitable Lead Trust

Loan Repayment Strategies (cont.)


• Reduces client’s cash outlay in early years• Life insurance cash surrender value may serve

as portion of the collateral• Attractive interest rate on borrowed funds

• Based on LIBOR or Prime

• Client may not have to liquidate assets

Benefits to Client


• May produce positive arbitrage if loan interest rates are lower than crediting rates

• Depending on lender, loan may be paid off at any time without prepayment penalty or paid upon the death of the insured

Benefits to Client (cont.)


Loan Interest Rate Risk• Interest rates will fluctuate over time

• Loan interest rates may only be locked in for a limited period of time (e.g., 1–5 years)

• Future loans will be at then-available interest rates

• A rise in loan interest rates could result in additional collateral requirements, less net death benefit, etc.

Financing Risks


Policy Crediting Rate Risk• Crediting rate may be less than anticipated

Collateral Call Risk• Decreased policy interest crediting rate could lead

to a collateral call

• In the event of a loan default, collateral could be called

Financing Risks (cont.)


• Premium financing has insurable interest as well as tax implications in a number of areas including estate, gift and income taxes

• Clients must rely on their independent legal and tax advisors to navigate through the various tax and legal issues

Legal and Tax Considerations


Approximately three months if:• Client commits

• Appropriate collateral is identified

• No surprises in underwriting

• Documents are submitted timely

TransLINK® Timeline


Make TransLINK® your “Single” Solution• Identify an opportunity

• Contact your agency

• Work with TransLINK, your one-stop shop

Seizing the Opportunity


This material was not intended or written to be used, and cannot be used, to avoid penalties imposed under the Internal Revenue Code. This material was written to support the promotion or marketing of the products, services, and/or concepts addressed in this material. Anyone to whom this material is promoted, marketed, or recommended should consult with and rely solely on their own independent advisors regarding their particular situation and the concepts presented here.

Transamerica Life Insurance Company, Transamerica Financial Life Insurance Company (collectively “Transamerica”), and their representatives do not give tax or legal advice. The material in this presentation and the concepts presented here are provided for informational purposes only and should not be construed as tax or legal advice. Clients and other interested parties must be urged to consult with and rely solely upon their own independent advisors regarding their particular situation and the concepts presented here.

Discussions of the various planning strategies and issues are based on our understanding of the applicable federal tax laws in effect at the time of presentation. However, tax laws are subject to interpretation and change, and there is no guarantee that the relevant tax authorities will accept Transamerica’s interpretations. Additionally, this material does not consider the impact of applicable state laws upon clients and prospects.

Although care is taken in preparing this material and presenting it accurately, Transamerica disclaims any express or implied warranty as to the accuracy of any material contained herein and any liability with respect to it. This information is current as of November 2013.

OLA 2109 1113