Life Insurance Review Name of Presenter Date Name

Life Insurance Review Name of Presenter Date Name of Location For Producer Use Only L-16943 Not for use with the General Public 3/04

What We’ll Cover Why a Life Insurance Review Classic Client Situations TL & A Support For Producer Use Only L-16943 Not for use with the General Public 3/04

Why a Life Insurance Review For Producer Use Only L-16943 Not for use with the General Public 3/04

Role of Life Insurance • Central in Completion of Client Plans Business Planning q Retirement Planning q Estate Planning q Survivor Protection q • Flexibility in Design Can Tailor Policy to Client’s Needs q Makes Life Insurance Complex q • Complexity Calls for Ongoing Review For Producer Use Only L-16943 Not for use with the General Public 3/04

Why a Life Insurance Review • Portfolio Review – Life Insurance Review • What a Review Does q Reviews a Client’s Needs • Examines Original vs. Current goals q Reviews Existing Life Insurance to Current Goals • Who Needs to Do a Life Insurance Review Financial Advisors q Trustees q Business Owners q For Producer Use Only L-16943 Not for use with the General Public 3/04

Personal Changes • Family Changes • q Marriage, Birth, Divorce • q Term to Permanent • q Term at a better price • Single Life now calls for • Buying a Business Covering a Mortgage Children’s Education Providing for Grandchildren Second-to-Die • Current Retirement • Policy Insufficient for Current Needs Options Insufficient to • Changing Job & Benefits Cover Client’s Lifestyle For Producer Use Only L-16943 Not for use with the General Public 3/04

Life Insurance Changes • Policies Not Performing • New Riders May Offer as Expected Improved Options • Changing Insurer Ratings • Longer-Term Needs Call for Permanent or Better • Newer Products Term Coverage q More Cost Efficient • Some Policies Scheduled q Offer Better Guarantees for a Jump in Premiums • Improved Underwriting For Producer Use Only L-16943 Not for use with the General Public 3/04

Classic Client Situations For Producer Use Only L-16943 Not for use with the General Public 3/04

Clients that May Need a Review • Younger & Middle-Aged Clients Changing Family Needs q To supplement income, make insurance permanent q • Older Clients who need to keep the policy in-force q Estate Planning & Trust owned life insurance q • Business Owner Clients Benefits – need to support promises q Business Continuation & Key Person q For Producer Use Only L-16943 Not for use with the General Public 3/04

Personal Client Changes All examples are entirely hypothetical and are not intended to represent any specific investment or insurance products. For Producer Use Only L-16943 Not for use with the General Public 3/04

Nick & Jessica • Bought $250, 000 term insurance 7 years ago for mortgage protection q q Now - 2 children & Jessica stopped working Nick’s employer benefits dropped to $50, 000 Group Term • Must purchase any additional group coverage • Life Insurance Review - Current insurance could not: q q q Pay for mortgage Support family Cover college tuition • Current insurance could pay mortgage & 2 years of expenses L-16943 For Producer Use Only Not for use with the General Public 3/04

Couple’s Dilemma • They need to - Cover family support costs q In addition to tuition & mortgage • They also need to - Fund for retirement Nick is fully funding his 401(k) & IRA q Current savings won’t support family’s lifestyle q Example based on a 35 year old male, funding a $1, 500, 000 hypothetical life insurance policy. Figures shown on next slide assume a 35% combined federal and state tax bracket. NOTE: Loans & withdrawals from a policy for income will reduce the death benefit and cash value. For Producer Use Only L-16943 Not for use with the General Public 3/04

Term vs. Permanent Insurance • Term coverage was relatively low No cash value savings q Scheduled to jump in year 15 – Nick’s age 40 q • Compare Permanent Coverage q Couple selects premium amount • $10, 000 premium on $1, 500, 000 death benefit q Plus retirement income here $41, 000 for 20 years • $300, 000 paid in - $820, 000 received + death benefit For Producer Use Only L-16943 Not for use with the General Public 3/04

Term & Permanent Compared Term Coverage • Premiums must be Permanent Coverage • Couple can vary premium • At $10, 000 premium – Age 65 paid each year or policy lapses q Cash Value ~ $600, 000 • Death benefit here q Death Benefit - $1, 500, 000 disappears at age 50 • $41, 000 income – 20 years • No cash value q Tax free withdrawals/loans • Savings in a side fund q Equivalent of $58, 571 taxable is not self completing For Producer Use Only L-16943 Not for use with the General Public 3/04

Trust Owned Life Insurance For Producer Use Only L-16943 Not for use with the General Public 3/04

Widespread Lack of Review • Trust Owned Life Insurance (TOLI) Survey • Professional Trustees 83. 5% - No guidelines & procedures for TOLI q 95. 3% - No policies for variable life policies q • Family & Friends as Trustees 94. 7% - No policies for variable life policies q 71. 2% - Have not reviewed life policies in past five years q Survey published in Trusts & Estates magazine, May 2003, page 63. For Producer Use Only L-16943 Not for use with the General Public 3/04

Trustee’s Dilemma • Charlie & Stella set up estate plan 10 years ago Were age 65 q $5, 000 covered by second-to-die in a trust q Couple had limited gifting capacity q Planned $88, 000 Gifts for 12 Years (their age 77) q • Irrevocable Trust (ILIT) bought two policies $2. 5 M Variable Second-to-Die – for growth q $2. 5 M Participating Whole Life – for security q • Ten Years Later – Much has Changed For Producer Use Only L-16943 Not for use with the General Public 3/04

Trustee’s Problem - VUL • Variable Universal Life • 10 Years ago - Illustrated at 10% q $42, 000/year would have carried $2. 5 M death benefit • Performance – averaged 2% over past 10 years Under planned gifts - death benefit fails age 86 q Or triggers $82, 000 in premiums at age 86 q Continue planned premiums for life – fails at age 93 q For Producer Use Only L-16943 Not for use with the General Public 3/04

Trustee’s Problem – Whole Life • Participating Whole Life - $46, 000 premium q Kept premiums low with term-perm blend • Dividends were to buy Paid Up Additions q Would have sustained $2. 5 M Death Benefit • Dividends have dropped with interest rates $2. 5 M death benefit will fail in year 89 q Or maintain current premiums for life q For Producer Use Only L-16943 Not for use with the General Public 3/04

Possible Solution • Life Insurance Review shows Ongoing need for $5 M death benefit q Existing Policies will fail without change q • Possibly look to newer life insurance contracts Use a Section 1035 exchange into a Universal Life with Secondary Guarantees q Can maintain $88, 000 for 5 years and receive $5, 000 death benefit q For Producer Use Only L-16943 Not for use with the General Public 3/04

Business Owners For Producer Use Only L-16943 Not for use with the General Public 3/04

Evolving Business Needs • Bill & Ted set up a cross-purchase 7 years ago q Manufacturing business was worth $4, 000 • Were 50: 50 owners Each bought a $2, 000 policy on the other q Bill paid more for Ted’s policy – smoker & weight problems q • Balanced costs with salary bonuses • Now – Business worth $9, 000 q Added a 3 rd Owner – Betty – has 33% stake • Have never re-examined their buy-sell For Producer Use Only L-16943 Not for use with the General Public 3/04

Were Do They Stand Today? Current Situation • Bill – 33% owner Older Plan • Bill – 50% owner q q $2, 000 stake $2, 000 coverage • Ted – 50% owner q q $2, 000 stake $2, 000 coverage q q $3, 000 stake $2, 000 coverage • Ted - 33% owner q q $3, 000 stake $2, 000 coverage • Betty – 33% owner q q $3, 000 stake No coverage For Producer Use Only L-16943 Not for use with the General Public 3/04

Insurance Review – Issues The Owners Face • Insufficient coverage Bill & Ted - $1, 000 Shortfall q Betty – has No Coverage q • Term Coverage Expending funds with no value to show q Can they get better coverage? q • Structure of the Buy-Sell For Producer Use Only L-16943 Not for use with the General Public 3/04

Structure of the Buy-Sell Older Plan • Each owns policies on the other • Seven Years ago q q 2 policies $2, 000 each Current Situation • Maintain Cross Purchase q q 6 policies over 3 owners $1, 500, 000 per policy Bill & Ted’s policies over insure (each = $2 M) Neither could buy out Betty • Move to a Redemption q 3 Policies - $3, 000 each For Producer Use Only L-16943 Not for use with the General Public 3/04

Potential Benefits of Changing Term to Permanent • Policy cash values can build assets Cross purchase – personal assets q Issue: What to do with policies post buy-sell q Redemption – policy values can fund benefits q • Ted no longer smokes, has lost weight Coverage may be less – even at 7 years older q Improved pricing may also drop costs q For Producer Use Only L-16943 Not for use with the General Public 3/04

Options 1 & 2 • Maintain Cross Purchase Drop Bill & Ted’s coverage to $1, 500, 000 each q Buy Coverage on Betty q Have Betty Buy Coverage on Bill & Ted q • OR q Price out new Coverage • Ted’s costs are likely to see the greatest savings q Drop Term in favor of Cash Value Life Insurance • Look to the cash value as a means of buy-out For Producer Use Only L-16943 Not for use with the General Public 3/04

Options 3 & 4 • Convert to a Redemption Fewer policies – paid for by the business q Now 1 - $3, 000 each vs. 6 - $1, 500, 000 each q Contribute existing insurance to business & adjust death benefit amounts q • OR Replace existing term with permanent cash value q Use to fund lifetime buyouts q Use to fund nonqualified (NQ) benefit programs q For Producer Use Only L-16943 Not for use with the General Public 3/04

How Life Insurance Reviews Helped For Producer Use Only L-16943 Not for use with the General Public 3/04

Personal Client Changes Adjusted death benefit amounts to meet current family needs Converted from term to permanent to: q. Use a portion of their investment cash to build cash values q. Cash values to supplement retirement q. Cash values to help college tuition For Producer Use Only L-16943 Not for use with the General Public 3/04

Trust Owned Life Insurance Confirmed the couple’s death benefit need Reviewed performance of existing insurance: q. Tracked the possible failure in the couple’s 80 s q. Looked at alternatives with existing insurance q. Compared alternatives with newer insurance q. More cost efficient q. Offered better guarantees For Producer Use Only L-16943 Not for use with the General Public 3/04

Business Owned Life Insurance Updated business continuation plan Adjusted death benefits to proper amounts Converted from term to permanent to: q. Help build business assets q. Provide a source of lifetime buyout funds q. Build funds as a possible source for NQ benefit plans For Producer Use Only L-16943 Not for use with the General Public 3/04

What Information Will I Need? • Permanent Insurance In-force Leger q Copy of Contract q • Term Policy q Copy of Contract • Employer Benefit q Benefit Information For Producer Use Only L-16943 Not for use with the General Public 3/04

TL & A Support for Life Insurance Review For Producer Use Only L-16943 Not for use with the General Public 3/04

Client Materials Everything you need! For Producer Use Only L-16943 Not for use with the General Public 3/04

Producer Materials Everything you need! For Producer Use Only L-16943 Not for use with the General Public 3/04

Two Targeted Web. Stories Life Insurance Review Term Conversion For Producer Use Only L-16943 Not for use with the General Public 3/04

What We Covered Why a Life Insurance Review Classic Client Situations TL & A Support For Producer Use Only L-16943 Not for use with the General Public 3/04

Important Disclosure Life insurance products are issued by The Travelers Insurance Company or The Travelers Life and Annuity Company, One Cityplace, Hartford, CT 06103 -3415, depending on jurisdiction. The principal underwriter is Travelers Distribution LLC. Variable life insurance is subject to market risk including possible loss of principal and a reduction of the client death benefit depending on the death benefit option selected. Clients must consult their legal and/or tax advisor. Life insurance is medically underwritten. Client should not cancel current coverage until new coverage is in force. Surrender charges may be due on an exchange of one contract for another. A change in policy may require an examination. Surrenders may be taxable. Clients should consult their tax advisors regarding tax liability on surrenders. Life insurance is medically underwritten, so all candidates should be in reasonably good health. You should not cancel a client’s current coverage until new coverage is in force. Surrender charges may be due on the exchange of one contract for another. A change in the policy may require an examination. Surrenders may be taxable. Your should consult their tax advisors regarding the tax liability on surrenders. For Producer Use Only L-16943 Not for use with the General Public 3/04