1 Section 79 Plans with SecurePlus Advantage 79 TAX-ADVANTAGED LIFE INSURANCE FOR BUSINESS OWNERS AND EMPLOYEES TC42529(0808) This information is not intended as tax or legal advice. Please consult with your attorney and accountant prior to acting on any of this information. National Life Group ® is a trade name representing various affiliates that offer a variety of financial services products.

2 What Is Section 79  Code section that permits ER’s to offer group life insurance to EE’s  Life Insurance is the only way to fund a Section 79 Plan  With a specially designed policy, the Employee can usually exclude about 35-40% of premium from taxable income

3 Benefits for Business Owner  Death Benefit can be used for: Family survivor needs Estate tax strategies Business succession  Can provide tax benefits For Company and owner-employees  Attract & retain good employees  Policy cash value can provide additional retirement asset accumulation Policy loans and withdrawals reduce the policy’s cash value and death benefit and may result in a taxable event.

4 Benefits for Employee  Life insurance protection Family survivor needs  Policy cash value can provide additional retirement asset accumulation  Completely portable EE owns policy, names beneficiary

5 Could You and Your Employees Benefit?  Need for life insurance as an employee benefit  Owns or controls business/professional practice  C corporation exists or can be integrated  Can spend $25,000 + annually for insurance premium  Motivated by potential income tax advantage  Maxed out on qualified plans

6 Insurance Options Under Section 79 Option 1: Permanent Benefits funded with cash value life insurance Deductible to ER Only partially includible in EE’s income About 35-40% of premium excluded from taxable income Option 2: Term death benefit* in same amount as Option 1 Deductible to ER EE taxed at Table I rates for coverage >$50,000 Option 3: $50,000 term death benefit Deductible to ER Not taxable as income to EE Tax advantages lost after year 5 * Group term insurance is not underwritten or issued by Life Insurance Company of the Southwest

7 Key Company Example *Assumes 65% exclusion ratio. Your results will differ with product and underwriting criteria. **Assumes preferred non-smoker and Secure Plus Advantage 79, form series 8593/8594/8593ID(0708)/8594ID(0708) is underwritten by Life Insurance Company of the Southwest, Dallas, TX and may not be available in all states. AgeW-2 Salary Annual Premium Average Taxable Income* Death Benefit (6.38 x W-2) OwnerM43$350,000$100,000$62,298$2,232,515 EE 1F45$75,000$20,315$12,754$478,500 EE 2M42$37,500$10,350$6,146$239,250 EE 3M37$82,000$19,007$11,757$523,560 EE 4M25$25,000$3,849$2,100$159,500 EE 5F33$18,000$3,198$1,727$114,840

8 Key Company - Options 2 & 3 * Based on IRS Table I term rates ** The cost of the first $50,000 of group term is not taxable to EE Age Death Benefit (6.38 x W-2) Option 2 Group Term Taxable Income* Option 3 $50,000 Taxable Income* EE 1F45$478,500$771$0 EE 2M42$239,250$227$0 EE 3M37$523,560$511$0 EE 4M25$159,500$79$0 EE 5F33$114,840$62$0

9 Examples How a Plan Can Work

10 Supplementary Retirement Income Using Insurance Policy Loans*  The plan provides permanent life insurance coverage  Policy cash value accumulates tax-deferred  If supplementary retirement income is needed, policy loans may be taken by the participant  Ultimately, the policy death benefit can continue to supplement income for a surviving spouse *Policy loans and withdrawals reduce the policy’s cash value and death benefit and may result in a taxable event. Surrender charges may reduce the policy’s cash value in the early years.

11 Estate Tax Planning The life insurance policy may be part of an estate planning strategy Gift policy to Irrevocable Life Insurance Trust* Value for income and gift tax purposes = 60-65% of premium 3-year rule triggered immediately * Trusts may involve complex tax rules and regulations. Clients should implement such strategies only with the advice and assistance of competent tax and legal advisors.

12 Reward & Retain Key People  Business owner wants to benefit key people only  Section 79 plan provides Life insurance for income replacement Potential supplementary retirement income through policy loans

13 Section 79 in Tax-Exempt Entity  Charity wants to benefit Executive Director Tax deduction doesn’t help Charity But tax exclusion helps Director Discounts the cost of life insurance for the Director

14 Section 79 & Buy-Sell  Two 50/50 owners of C corp  Owners buy term policies on each other to fund death contingency  Section 79 policies help fund lifetime buyout Policy loans available for installment payments* Death benefits provide personal protection * Policy loans and withdrawals reduce the policy’s cash value and death benefit and may result in a taxable event.

15 What Could Go Wrong?  Tax laws can change  5-year funding commitment Policy must be able to sustain itself if ER cannot contribute Rank and file may elect options more costly than $50,000 of group term coverage

16 How it Works  ER works with Financial representative Legal and accounting professionals Plan administrator (TPA)  Identify eligible employees  Rank & file elect coverage option  Life insurance applications completed  Plan documents signed  Corp makes contributions  Policies issued to participants  TPA calculates annual income inclusion