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AIG SELECT PREMIUM FINANCINGSM

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Presentation on theme: "AIG SELECT PREMIUM FINANCINGSM"— Presentation transcript:

1 AIG SELECT PREMIUM FINANCINGSM
Presenter’s Name Date

2 Benefits of Premium Financing
Life insurance premium financing is a useful technique within a comprehensive estate plan – providing benefits from portfolio, liquidity and gift tax management perspective. Enables the client to preserve, maintain and build existing investment portfolio without liquidating assets to pay life insurance premiums Offers a planning opportunity for gifting strategies. Premium loans may minimize or eliminate gift taxes on policy premiums May produce a positive interest rate arbitrage if borrowing rates are favorable compared to the crediting rates under the life insurance policy

3 How Basic Premium Financing Works
ILIT Borrower Lender Loan Application Annual Interest Life Application Policy Premium Heirs Assignment Life Insurance Company Life Insurance Policy Net Death Benefit $

4 Advantages of AIG Select Premium Financing
The AIG Select Premium FinancingSM approach to premium financing is available for use with the new American General Life Insurance Company product – AIG Elite Global IUL, an indexed universal life insurance product, and premium financing through Concord Capital, a third party lender A more conservative approach to traditional premium financing that can be used to maximize estate planning and gift tax strategies by providing access to lower cost loans Policy cash value is the only collateral required

5 Advantages of AIG Select Premium Financing
By requiring two out-of-pocket premium payments to be paid by the policy owner, the client significantly reduces the risk that the loan will exceed policy cash values and require significant premium payments in later years By reducing potential risks for the borrower, the lender can provide more attractive loans and interest rates Paying two premiums out-of-pocket reduces risk by accumulating cash value in the policy early on

6 Eligibility Requirements
Individuals who have a minimum net worth of $2,500,000 and minimum net income of $200,000 per year Minimum total loan commitment of $250,000 Loans will be made to a bankruptcy remote entity, which may include an ILIT, FLP, operating corporation or a special purpose vehicle (a bankruptcy remote entity is an entity that is unaffected by possible bankruptcy of the insured) Must be able to qualify for life insurance

7 Select Lending Approach
Parameters of the Select Lending Approach Policy owner must pay the first two planned periodic premiums out-of-pocket. This may require that gifts be made to an ILIT and could be subject to tax The planned periodic premium payments due will be borrowed from the lender beginning with the third policy anniversary The borrower may pre-qualify for the loan commitment at policy issue with the payment of an arrangement fee Loan proceeds will be advanced by the lender beginning with the third premium payment Interest and arrangement fee for loan may be rolled into the loan or paid out-of-pocket

8 Select Lending Approach
Parameters of the Select Lending Approach The AIG Elite Global IUL policy will serve as the sole source of collateral for the total outstanding loans, no other collateral is required, and no personal guaranty is required of the insured The required collateral assignment of the policy will restrict access to the cash value and reduce the net death benefit At no time will the loan exceed 97.5% of the current cash value of the policy In the event the ratio of loans to collateral is violated, the policy owner will be required to make additional premium payments or loan reduction payments in order to avoid default

9 Select Loan Interest Rate
Based on annual LIBOR* The spread over LIBOR, once determined, will not change Loan renews annually subject to lender’s requirements Rates fluctuate, so the actual loan rate may differ from the illustration * LIBOR: London Inter Bank Offering Rate in U.S. Dollars

10 Loan Interest Rates/Arrangement Fees
Option 1: Finance up front for a discounted interest rate* Commitment Amount Interest Rate Arrangement Fee Payable Yr 1 Arrangement Fee Payable Yr 3 Arrangement Fee Total (bps) <$ 2.5 M LIBOR + 111 65 bps 35 bps 100 bps $ $ 5M LIBOR $ $10M LIBOR 52.5 bps 87.5 bps $ $20 M LIBOR 37.5 bps 75 bps >$20M LIBOR *Calculations are for illustration purposes only and assume calculation for simple interest and do not take into account the time value of money If the financing is arranged up front at the inception of the policy, the arrangement fee is 100 basis points, and the interest rate is LIBOR bps. The arrangement fee may be paid in cash or financed. Sixty-five bps of the arrangement fee is paid in year 1 and 35 bps of the arrangement fee is paid in year 3.

11 Loan Interest Rates/Arrangement Fees
Option 2: Financing is more costly if deferred until year 3 Commitment Amount Arrangement Fee Paid at Yr 3 Interest Rate <$ 2.5 M 100 bps LIBOR + 120 $ $ 5M LIBOR + 115 $ $10M 87.5 bps LIBOR $ $20 M 75 bps LIBOR >$20M LIBOR *Calculations are for illustration purposes only and assume calculation for simple interest and do not take into account the time value of money If the financing is deferred to year 3, the arrangement fee is 100 basis points but the interest rate is LIBOR bps. This may be the costlier option.

12 Select Loan and Renewal Process
Be aware of the renewal date of the loan and anniversary date of policy. Indexed policies must be funded on or before policy anniversary date to direct the funds to the indexed account. The loan renewal will normally occur unless there is a change in the borrower’s financial condition or violation of the collateral requirements The renewal process will commence at least forty-five (45) days prior to the policy anniversary date and may require updated documents such as a financial statement and tax return Any lending decisions are up to the lender and borrower and all such decisions are made on a case-by-case basis.

13 Tax Considerations Interest on indebtedness to acquire or maintain a life insurance contract is generally considered personal interest and almost always nondeductible under IRC Section 163 Life Insurance proceeds will be included in owner’s estate if insured owns the policy or possesses any incidents of ownership in the policy If a Trust borrows from the insured to pay premiums, proceeds payable to the Trust are not included in the insured’s estate Contributions to a Trust for premium payments are taxable gifts. Loans to a trust for premium payments are not a taxable gift. There may also be a taxable gift for the value of the foregone interest on the loan if no interest is paid by the Trustee to the Grantor.

14 Important Information
There are complex legal and tax implications associated with the various strategies illustrated here. Clients must consult their own tax and/or legal advisors to determine whether or not any plan or program illustrated is appropriate for them and to understand all the benefits and risks of any premium financing transaction. Please consider the following issues: Each client should have an exit strategy in case borrowing costs become excessive or there is a change in the client’s financial situation. Premium loans can be repaid by the borrower from other assets, from policy values or at death. Funds available in the policy will depend on policy design and performance of the policy. Effective planning requires that clients consult with their own attorney. AIG American General agents, representatives, and employees are not authorized to practice law or to provide legal or tax advice and are not doing so with these materials or otherwise. The material contained in any illustration is not a substitute for consultation with a competent legal advisor. Furthermore, the results indicated by any of these strategies are dependent upon our understanding of current federal and state income, gift and estate tax laws as presently interpreted by the Internal Revenue Service and state tax authorities. Any change in such laws or interpretations (or in tax rates) could affect the results illustrated. A change in the status of the insurance product under federal securities laws could adversely affect the availability of premium financing. CONCORD CAPITAL and its affiliates have no duty, liability, or responsibility for any such advice. No representation or warranty, express or implied, is made by CONCORD CAPITAL and its affiliates as to the completeness of the information in this presentation. This presentation does not constitute, and may not be relied upon as, a commitment to lend or promise of any kind by CONCORD CAPITAL and its affiliates.

15 Important Information
AIG American General, is the marketing name for the insurance companies and affiliates of American International Group, Inc. (AIG), which comprise AIG’s Domestic Life Insurance Operations. AIG Elite Global IUL Policy Form Number 06444 Policies Issued by: American General Life Insurance Company A member company of American International Group, Inc. 2727-A Allen Parkway, Houston, Texas 77019 The underwriting risks, financial obligations and support functions associated with the products issued by American General Life Insurance Company (American General Life) are its responsibility. American General Life is responsible for its own financial condition and contractual obligations. American General Life does not solicit business in the state of New York. Policies and riders not available in all states. © 2007 American International Group, Inc. All rights reserved.

16 Premium Financing Thank you for your time!


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