Allianz Life Insurance Company of North America Business

Allianz Life Insurance Company of North America Business 2 Benefits: Split-dollar life insurance PPT-425 2957999. 1

Agenda 2 01 02 03 04 What is FIUL? What is split-dollar life insurance? How it works Tax considerations

Fixed Index Universal Life Insurance Generally income-tax-free death benefit protection • • • 1 Policy Income replacement Final expenses Mortgage and other debt Supplemental college funding Other financial emergencies and needs Living advantages • Potential to build accumulation value • Tax advantages • Access to any available cash value 1 through policy loans and withdrawals will reduce the available cash value and death benefit and may cause the policy to lapse, or affect guarantees against lapse. Withdrawals in excess of premiums paid will be subject to ordinary income tax. Additional premium payments may be required to keep the policy in force. In the event of a lapse, outstanding policy loans in excess of unrecovered cost basis will be subject to ordinary income tax. If a policy is a Modified Endowment Contract (MEC), policy loans and withdrawals will be taxable as ordinary income to the extent there are earnings in the policy. If any of these features are exercised prior to age 59½ on a MEC, a 10% federal additional tax may be imposed. Tax laws are subject to change and you should consult a tax professional. 3

FIUL offers a combination of THREE TAX ADVANTAGES 1 INCOME-TAX-FREE Death benefit¹ 4 2 TAX-DEFERRED Cash value accumulation potential 3 INCOME-TAX-FREE Loans and withdrawals 2 1 The death benefit is generally income-tax-free to beneficiaries. 2 Policy loans and withdrawals will reduce the available cash value and death benefit and may cause the policy to lapse, or affect guarantees against lapse. Withdrawals in excess of premiums paid will be subject to ordinary income tax. Additional premium payments may be required to keep the policy in force. In the event of a lapse, outstanding policy loans in excess of unrecovered cost basis will be subject to ordinary income tax. If a policy is a modified endowment contract (MEC), policy loans and withdrawals will be taxable as ordinary income to the extent there are earnings in the policy. If any of these features are exercised prior to age 59½ on a MEC, a 10% federal additional tax may be imposed. Tax laws are subject to change and you should consult a tax professional.

What is split-dollar life insurance? A life insurance benefit that your business can offer Key employee insured Business pays all or part of premium Death benefit proceeds are split 5

Who benefits from split-dollar life insurance? KEY EMPLOYEES WHO WISH TO HAVE ADDITIONAL LIFE INSURANCE 6 FAMILY-OWNED BUSINESS OWNER WHO WANTS THE BUSINESS TO PAY THEIR LIFE INSURANCE PREMIUM KEY EMPLOYEE OR BUSINESS OWNER WHO ANTICIPATES TO STAY WITH THE BUSINESS

Two options for split-dollar arrangement Endorsement method Collateral assignment method • Your business owns the policy • Your business pays the premiums • Your business is a publicly traded C corporations that cannot make loans to employees • Table 2001 rates • The insured owns the policy • Your business makes loan to pay premiums • Insured needs to repay collateral assignment on policy in future • IRS interest rates *Before the endorsement method or collateral assignment method split-dollar life insurance can be issued, the business must comply with employer-owned life insurance (EOLI) rules. EOLI rules require the business to get a signed notice of consent from the insured and provide ongoing reporting to the IRS regarding policy ownership. Some potential issues to consider before adapting a split-dollar agreement: Under-collateralization may expose the employer to the business risk of not receiving repayment for the premium loans. Insufficient cash value could result in the inability to finance policy loans and withdrawals the executive is relying on to help supplement retirement income. 2 7

Endorsement method Step 2 Step 1 Enter into a endorsement method agreement. Your business purchases Life Insurance on the key employee. TAXED ON ANNUAL ECONOMIC BENEFIT – TABLE 2001 COSTS. Step 3 The beneficiary of the policy is split. DEATH BENEFIT IS SPLIT PAYS & OWNS PREMIUM 8 These hypothetical examples are provided for illustrative purposes only. You should consult your attorney and/or tax advisor to address these and other potential concerns regarding your unique situation.

Collateral assignment method Step 1 Enter into a collateral assignment method agreement. Step 3 Step 2 Step 4 Benefit is split per collateral Insured purchases and owns the policy. . . Insured collaterally assigns an interest assignment, and balance is paid to in the policy to the employer. insured’s beneficiaries. TAXED ON ANNUAL DEATH ECONOMIC BENEFIT – TABLE IS SPLIT 2001 COSTS OR LOAN TAXATION RAL E T A L COL NT E M IGN ASS PAYS PREMIUM 9 These hypothetical examples are provided for illustrative purposes only. You should consult your attorney and/or tax advisor to address these and other potential concerns regarding your unique situation.

Tax considerations Endorsement method Tax treament Collateral assignment method: Economic Benefit Regime Collateral assignment method: Loan Regime 10 1 § Key employee (the insured) taxed annually on Table 2001 costs § NON-income-tax-deductible for employer § Income-tax-free death benefit to personal beneficiary and the employer 1 § Premiums paid by the business are considered a loan to the employee based on IRA rates and rules § If insured pays interest to the business, there is no annual taxation to the employee and the interest amount is income-taxable to the business § NON-income-tax-deductible for employer § Income-tax-free death benefit to personal beneficiary and employer 1 But only if the employer meets the IRS employer-owned life insurance rules which require advance notice and consent from the employee.

INVEST IN YOUR KEY QUESTIONS? EMPLOYEES, PROTECT YOUR BUSINESS. THANK YOU. QUESTIONS? 11

This content is for general educational purposes only. It is not intended to provide fiduciary, tax, or legal advice and cannot be used to avoid tax penalties; nor is it intended to market, promote, or recommend any tax plan or arrangement. Allianz Life Insurance Company of North America, its affiliates, and their employees and representatives do not give legal or tax advice. Customers are encouraged to consult with their own legal, tax, and financial professionals for specific advice or product recommendations. An employer-owned life insurance policy may be subject to the requirements of Internal Revenue Code 101(j) in order to obtain an income-tax-free death benefit. In general, those rules require that before the policy is issued, the employer must provide the insured with a written notice of the life insurance and obtain a written consent from the insured. Consult with an attorney for application of those rules to a specific situation. Product and feature availability may vary by state and broker/dealer. Guarantees are backed solely by the financial strength and claims-paying ability of Allianz Life Insurance Company of North America. www. allianzlife. com Products are issued by Allianz Life Insurance Company of North America, 5701 Golden Hills Drive, Minneapolis, MN 55416 -1297. 800. 950. 1962. 12