© FMT Solutions, Inc. 7.0 Risk Management & Asset Protection This material is intended to provide general financial education and is not written or intended as tax or legal advice and may not be relied on for purposes of avoiding any Federal tax penalties. Individuals are encouraged to seek advice from their own tax or legal counsel. Individuals involved in the estate planning process should work with an estate planning team, including their own personal legal or tax counsel. Presented by: Lisa Hou, CLU ChFC L.H. Financial, Inc. Securities and Advisory Services offered through Multi-Financial Securities Corporation, member FINRA, SIPC. L. H. Financial, Inc. is not affiliated with Multi-Financial Securities Corporation.

© FMT Solutions, Inc. 7.0 Risk Management & Asset Protection Introduction: Insurance The purchase of insurance transfers risk from you to the insurance company 風險轉移 In case of financial loss, the insurance company will reimburse you based on your coverage In addition to protecting your assets, insurance protection provides peace of mind for you and your family 安心 Page 7-1

© FMT Solutions, Inc. 7.0 Risk Management & Asset Protection Introduction Today, we will discuss many risk management related topics including: Disability Income Insurance 傷殘保險 Life Insurance 人壽保險 Types of Term Insurance Types of Cash Value Insurance Page 7-1

© FMT Solutions, Inc. 7.0 Risk Management & Asset Protection Disability Income Insurance Many people take one of their greatest financial assets, the ability to earn a living, for granted. Without disability insurance, they leave this asset unprotected. People often rely upon other sources of disability protection such as: Workers compensation – Only provides protection if your injury was caused by an accident at work. Social Security – Disability benefits are only provided if you cannot work at all for at least twelve months and then you must wait six months to receive your first benefit check. Page 7-3

© FMT Solutions, Inc. 7.0 Risk Management & Asset Protection Disability Income Insurance Disability insurance is very important for several reasons: If you become disabled, it pays a percentage of your wages If the disability is severe, you may never be able to work again Disability may result in medical expenses not covered by health insurance Insurance benefits help to pay for expenses and to maintain your lifestyle Prior to age 65, you have a greater chance of becoming disabled than dying Page 7-3

© FMT Solutions, Inc. 7.0 Risk Management & Asset Protection Disability Income Insurance TYPES OF DISABILITY INSURANCE Group Individual Short term Long term Page 7-3

© FMT Solutions, Inc. 7.0 Risk Management & Asset Protection Disability Benefit Benefit from a Company provided program -- Taxable income Benefit from an Individual policy -- Tax Free

© FMT Solutions, Inc. 7.0 Risk Management & Asset Protection Introduction to Life Insurance Most types of insurance are purchased with the hope that you will never need to use them. With life insurance, the question is not if you will need to use this financial protection but when. All types of life insurance charge a premium, or payment, in return for the promise to pay your beneficiaries a death benefit when you pass away The cost of life insurance may vary depending upon the amount of coverage, the gender, age and health of the insured individual, and the type of insurance selected Page 7-18

© FMT Solutions, Inc. 7.0 Risk Management & Asset Protection Introduction to Life Insurance Key features of life insurance include: Main purpose is to provide financially for your dependents upon your death There are many types of insurance that provide flexibility and a variety of investment choices Life insurance has a favorable and unique tax treatment that can be used to create a more effective financial plan Page 7-18

© FMT Solutions, Inc. 7.0 Risk Management & Asset Protection Introduction to Life Insurance INSURANCE SELECTION CONSIDERATIONS Many factors may influence your life insurance needs including: Your objectives for purchasing life insurance Your financial obligations and lifestyle Your age, income and assets The age, income and assets of dependents A variety of estate considerations Page 7-18

© FMT Solutions, Inc. 7.0 Risk Management & Asset Protection Life Insurance Needs & Benefits Life insurance needs will most likely change over time Depending upon personal and financial situations, some people discover that their life insurance needs decrease upon retirement It is important to have your life insurance coverage reviewed from time-to-time, especially when major life changes occur Life insurance may provide both living benefits and death benefits Page 7-19

© FMT Solutions, Inc. 7.0 Risk Management & Asset Protection Life Insurance Needs & Benefits LIVING BENEFITS Create a cash reserve with tax-deferred growth Provide additional retirement income Maximize pension income Pay for expenses of long-term or hospice care Page 7-19

© FMT Solutions, Inc. 7.0 Risk Management & Asset Protection Life Insurance Needs & Benefits DEATH BENEFITS Preserve dependents’ standard of living Provide for college expenses Eliminate home mortgage and loan balances Pay estate taxes and settlement expenses Create an immediate estate Equalize inheritances for beneficiaries Provide a charitable gift Fund a business transfer or provide key employee protection Page 7-19

© FMT Solutions, Inc. 7.0 Risk Management & Asset Protection Insurance Needs analysis How much Life Insurance do I need? Life Insurance Calculator Needs Estimator / Value Calculator Usually about 5 – 7 times your salary.

© FMT Solutions, Inc. 7.0 Risk Management & Asset Protection Life Insurance Categories There are more types of life insurance policies today than ever before. However, there are still only two main categories of life insurance: Term Insurance Cash Value Insurance Page 7-20

© FMT Solutions, Inc. 7.0 Risk Management & Asset Protection Term Insurance Purchased for a specific period of time, this insurance only provides a death benefit for the length of the term. If you are still living when the policy expires, you and your beneficiaries do not receive any benefits. IS TERM RIGHT FOR YOU? Term insurance may be appropriate if you: Need death benefit coverage only for a certain period of time Cannot afford a higher initial premium payment Will not need to accumulate cash value or borrow against your policy Page 7-20 Purchased for a specific period of time, this insurance only provides a death benefit for the length of the term. If you are still living when the policy expires, you and your beneficiaries do not receive any benefits. IS TERM RIGHT FOR YOU? Term insurance may be appropriate if you: Need death benefit coverage only for a certain period of time Cannot afford a higher initial premium payment Will not need to accumulate cash value or borrow against your policy

© FMT Solutions, Inc. 7.0 Risk Management & Asset Protection Term Insurance TYPES OF TERM INSURANCE Level Premium – Death benefit and premium payments remain level for the entire term of the policy. Annual Renewable – This type of policy may be renewed each year, usually at a higher premium (due to increased risk of death), although your death benefit remains level. Decreasing Term – Although premiums remain level, death benefit decreases each year since less coverage may be needed as you get older. Page 7-20

© FMT Solutions, Inc. 7.0 Risk Management & Asset Protection How much does term insurance cost? Age Rating Male 20 year level Michigan $500K Annual premium* * Prices are only for reference.

© FMT Solutions, Inc. 7.0 Risk Management & Asset Protection Cash Value Insurance In a cash value policy, part of the premium pays for a death benefit while the remainder is deposited into a cash reserve. If you die while covered under the policy, your beneficiaries receive a death benefit While still alive, you may access the cash value in the policy Page 7-21

© FMT Solutions, Inc. 7.0 Risk Management & Asset Protection Cash Value Insurance Cash value policies are often referred to as permanent insurance. The premiums during the first several years are usually more expensive than comparable term policies However, the payments may be lower and the benefits may be greater than comparable term coverage over the lifetime of the policy Page 7-21

© FMT Solutions, Inc. 7.0 Risk Management & Asset Protection Cash Value Insurance IS CASH VALUE RIGHT FOR YOU? Cash value insurance may be appropriate if you: Want or need long-term life insurance coverage Seek to accumulate cash value in the policy on a tax-deferred basis Don’t want age restrictions for contributions or minimum required distributions (unlike 401ks and IRAs) Page 7-21

© FMT Solutions, Inc. 7.0 Risk Management & Asset Protection Cash Value Insurance IS CASH VALUE RIGHT FOR YOU? Wish to avoid contribution limits 1 (unlike 401ks, IRAs and Roth IRAs) Want the ability to withdrawal the cash value tax-free 2 May need to borrow (usually tax-free) against your policy 3 Don’t want beneficiary to pay taxes on investment earnings due to tax-free death benefit 4 Page Additional cash value contributions may not be made to Whole Life policies or Variable Life insurance policies. Maximum contribution limits may apply to some Universal Life and Variable Universal Life insurance policies. 2 Partial withdrawals lower the death benefit by the amount withdrawn. Income taxes are owed on the total withdrawals that exceed what has been paid into the policy. Withdrawals are not permitted from Whole Life insurance policies. Percentage limits apply to withdrawals from Variable Universal Life insurance policies. 3 Outstanding policy loans at the time of death will reduce the policy death benefit. Interest payments are usually required for most policy loans. Percentage limits apply to loans from Variable Universal Life insurance policies. 4 Although death benefit is usually tax-free, to avoid paying any taxes on investment earnings, policy must be held until death of insured.

© FMT Solutions, Inc. 7.0 Risk Management & Asset Protection Types of Cash Value Insurance WHOLE LIFE This traditional type of cash value insurance guarantees level premiums If premiums are paid as specified in the policy, coverage is effective until you pass away and provides a guaranteed death benefit You accumulate cash reserves but you don’t control how your money is invested However, the cash value does have minimum guarantees Page 7-22

© FMT Solutions, Inc. 7.0 Risk Management & Asset Protection Whole Life Page Other charges and expenses may apply 2 Guarantees are based on the claims-paying ability of the issuing life insurance company. 3 Loans may not exceed policy’s cash surrender value minus the annual loan interest. Accessing cash values may result in surrender fees and charges, may reduce death benefits, and will result in a reduction of policy value. Fixed payments to cash value Level premiums Policy amount = Cash value + insurance Insurance coverage 2 Premium deductions 1 Insurance costs Sales charge Premium tax Administrative fees Loans 3 Insurance company general account Cash value account

© FMT Solutions, Inc. 7.0 Risk Management & Asset Protection Types of Cash Value Insurance UNIVERSAL LIFE This type of policy offers flexible premiums and an adjustable death benefit Your premiums are deposited into your cash value account Insurance protection and other policy charges are then paid from your cash account You can deposit additional payments in order to build your cash value There is usually guaranteed interest plus any additional interest on your cash value that is also re-deposited over time Page 7-23

© FMT Solutions, Inc. 7.0 Risk Management & Asset Protection Types of Cash Value Insurance UNIVERSAL LIFE If your cash value is large enough, you can lower your premiums by using the cash value to cover charges If the cash value is too low to cover charges, additional premiums are required Page 7-23

© FMT Solutions, Inc. 7.0 Risk Management & Asset Protection Universal Life Page Premiums are based on insurance coverage for your policy, premium taxes, and company expenses. If your cash value is not enough to pay for insurance coverage and expenses and you do not pay increased premiums, the policy amount may be reduced or your policy may lapse. 2 Other charges and expenses may apply 3 Guarantees are based on the claims-paying ability of the issuing life insurance company. 4 Loans may not exceed policy’s cash surrender value minus the annual loan interest. Accessing cash values may result in surrender fees and charges, may require additional premium payments to maintain coverage, may reduce death benefits, and will result in a reduction of policy value. Remaining premium to cash value Flexible premiums 1 Policy amount 1 = Cash value + insurance Insurance coverage 3 Cash value account Separate portfolio (within insurance company general account) Premium deductions 2 Sales charge Premium tax Cash value deductions 2 Insurance costs Administrative fees Loans 4 Guaranteed interest 3 Excess interest

© FMT Solutions, Inc. 7.0 Risk Management & Asset Protection Types of Cash Value Insurance VARIABLE UNIVERSAL LIFE This type of insurance provides the investment choices of variable life and flexible premiums of universal life This policy enables you to determine how much of your premium will be allocated to insurance costs and cash values You may also make additional payments credited to your cash value account The performance of your investments will determine both your cash value and your death benefit Cash value and death benefit are not guaranteed Page 7-25

© FMT Solutions, Inc. 7.0 Risk Management & Asset Protection Variable Universal Life Page Premiums are based on insurance coverage for your policy, premium taxes, and company expenses. If your cash value is not enough to pay for insurance coverage and expenses and you do not pay increased premiums, the policy amount may be reduced or your policy may lapse. 2 Other charges and expenses may apply 3 Guarantees are based on the claims-paying ability of the issuing life insurance company. 4 Securities-based subaccounts which you may select are not guaranteed and may lose value. 5 Loans may not exceed policy’s cash surrender value minus the annual loan interest. Accessing cash values may result in surrender fees and charges, may require additional premium payments to maintain coverage, may reduce death benefits, and will result in a reduction of policy value. Remaining premium to cash value Flexible premiums 1 Policy amount 1 = Cash value + insurance Insurance coverage 3 Premium deductions 2 Sales charge Premium tax Cash value deductions 2 Insurance costs Administrative fees Loans 5 Investment sub-accounts 4 Equity portfolios Fixed income portfolios Money market portfolios Cash value account Variable investment deductions 2 Advisory fees Management expenses

© FMT Solutions, Inc. 7.0 Risk Management & Asset Protection Life Insurance Comparison Page 7-26 TermVariable Life Variable Universal Life CoverageLength ofLifetimeLifetimeLifetimeLifetime term PremiumsGuaranteedGuaranteedFlexibleGuaranteedFlexible level duringlevellevel term Universal life Whole Life Note: Policy specifics vary by company. A full needs analysis should be completed to determine which type of life insurance is more suitable for your situation.

© FMT Solutions, Inc. 7.0 Risk Management & Asset Protection Life Insurance Comparison Page 7-26 TermVariable Life Variable Universal Life DeathFixedFixedAdjustableAdjustableAdjustable benefit CashNone 1 GuaranteedGuaranteedBased onBased on value low interestminimuminvestmentinvestment rate 2 interest rate 2 performanceperformance – not– not guaranteedguaranteed Universal life Whole Life Note: Policy specifics vary by company. A full needs analysis should be completed to determine which type of life insurance is more suitable for your situation. 1 Term life may have significantly lower premiums, so an option for the disciplined investor may be to “buy term and invest the difference”. 2 Guarantees are based on the claims paying ability of the issuing insurance company.

© FMT Solutions, Inc. 7.0 Risk Management & Asset Protection Life Insurance Comparison Page 7-26 TermVariable Life Variable Universal Life VariableNoNoNoYes 3 Yes 3 investment choices InvestmentNoneInsuranceInsuranceYouYou riskCompanyCompany Tax-NoYesYesYesYes deferred growth potential Universal life Whole Life Note: Policy specifics vary by company. A full needs analysis should be completed to determine which type of life insurance is more suitable for your situation. 3 Both the return and principal value will fluctuate and when redeemed, may be worth more or less than the original cost.

© FMT Solutions, Inc. 7.0 Risk Management & Asset Protection Survivorship Life This type of life insurance policy insures the lives of two people and is available as whole life, universal life, variable life or variable universal life Premiums are often less expensive than purchasing two separate policies since the death benefit is payable only upon the second death This policy is not designed to meet the needs of the surviving spouse It is often used to pay estate taxes or provide an inheritance Page 7-27