Do not put content on the brand signature area ©2014 Voya Services Company. All rights reserved. CN0904-12224-0916 Key Person protection

©2014 Voya Services Company. All rights reserved. CN0904-12224-0916

Key Person protection


Disclosures

The Voya™ Life Companies and their agents and representatives do not give tax or legal advice. This information is general in nature and not comprehensive, the applicable laws change frequently and the strategies suggested may not be suitable for everyone. You should seek advice from your tax and legal advisors regarding your individual situation.

These materials are not intended to and cannot be used to avoid tax penalties, and were prepared to support the promotion or marketing of the matter addressed in this document. The taxpayer should seek advice from an independent tax advisor.

Life insurance products are issued by ReliaStar Life Insurance Company (Minneapolis, MN), ReliaStar Life Insurance Company of New York (Woodbury, NY) and Security Life of Denver Insurance Company (Denver, CO). Within the state of New York, only ReliaStar Life Insurance Company of New York is admitted and its products issued. All are members of the Voya™ family of companies.

All guarantees are based on the financial strength and claims paying ability of the issuing insurance company who is solely responsible for all obligations under its policies.

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©2014 Voya Services Company. All rights reserved. CN0904-12224-0916 3

Time

Money

Passion

You’ve invested a lot in your business

} Your business


Your business is probably your most valuable asset.

Your lifestyle and your financial foundation depend on it.


Do you have some special employees?

Do some of your employees have special skills that make you profits?

Unique Contacts/Connections

Innovative/Technical Abilities

Sales Track Record

Management/Leadership Skills

Financial Expertise

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Key people increase your profits

If you’ve done a good job hiring, you have some key people whose skills create profits.

Your income and economic security may depend on them staying with your business and continuing to do a good job.

The unexpected loss of even one key employee can reduce your profits for years.

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What would it mean to your business if your most valuable employee died unexpectedly?

We often take our key people for granted.


Losing a key employee can be devastating

Who will take over the key person’s duties?

How long will it take to find a good replacement?

Will you have to pay the new person more?

How long until he/she is up to speed?

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Losing a key employee can be devastating

Will you have to do both your job and the key employee’s job at the same time?

What will be the impact on your customers?

What will be the impact on the other employees?

What will happen to business profits?

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Protecting your business

Smart business owners hope for the best

But they plan in advance for the worst

They anticipate disasters and are prepared if the unexpected happens

They have contingency plans ready if they are needed

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Do you have a plan in place to minimize the loss if one of your key people dies unexpectedly?

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Preparation is key

Smart business owners protect their businesses Many businesses use a four step process:

1. Identify their key people

2. Determine how much value would be lost

3. Explore the alternatives available

4. Decide how much of the risk to self-insure

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Calculating a key person’s value

Jim Williams is CFO for CRAZY Tools, Inc. He is a key employee responsible for $100,000 of

profits annually. Other facts:

– Total salary & perks $175,000 annually– A replacement would cost $225,000 annually– A new person would need 4 years to equal him– Recruiting costs/commissions would be $50,000– Training costs would be $25,000

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Key Person Valuation Tool

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Key Person Valuation Tool

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Consider using Key Person Life Insurance

Key Person Life Insurance can protect your business for a relatively small cost.

Life insurance on the key person can help:

– Provide funds to recruit, hire and train a qualified replacement

– Replace lost profits

– Provide funds to pay business debts

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How Key Person Life Insurance works

Business purchases a life insurance policy on key person and pays premiums.

Business names itself as the beneficiary.

If key employee dies, death benefits are paid to the business; they can be used to pay expenses or replace lost profits.

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Key Person Life Insurance

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1

Premiums

Policy

1 Policy3 Death Benefits2

Life Insurance PolicyBusiness

Voya Life Companies


Income Tax aspects of Key Person Life Insurance

Premiums are not income tax deductible

Death Benefits are generally income tax free (IRC Sec. 101)*

If the business is a C corporation, then cash value growth and death benefits may be subject to the corporate alternative minimum tax (AMT)

*Assuming a 101(j) consent form has been signed by the key employee.

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Some potential advantages

Income tax free death benefits under IRC section 101* (subject to the AMT for C corporations)

Policy cash values are an asset on the business’ balance sheet

Growth in cash values is income tax-deferred (subject to the AMT for a C corporation)

Risk of loss is transferred to the insurance company

*Assuming a 101(j) consent form has been signed by the key employee.

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Some potential advantages Income tax free death benefits

under IRC section 101* (subject to the AMT for C corporations )

Policy cash values are an asset on the business’ balance sheet

Growth in cash values is income tax-deferred (subject to the AMT for a C corporation)

Risk of loss is transferred to the insurance company

Some potential disadvantages Premium payments are not

income tax deductible Determining a key employee’s

value is an art, not a science Key employees can leave the

business before death; the business may incur similar losses / expenses

Insured key employee needs to execute a 101(j) notice and consent form

*Assuming a 101(j) consent form has been signed by the key employee


What about you?

Are you a Key Person in your business?

What would happen if you died on the way home from work?

Would happen to the value of your business?

What would that mean to your family’s finances?

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Suppose you died in an accident on the way home from work tonight

– How much of the value of your business would be lost? Would your business survive? What would your family do?

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Do you have a plan in place to protect your business and your family?


Suppose you die unexpectedly

There is a Plan: What does it say? When was it created? What value does it place on

your interest? Is there enough money

backing it up Does it make sense today?

There is no Plan: Who makes decisions? Will customers stay loyal? What will happen to your

business interest? Will your key employees

stay or be hired away? How much business value

will disappear?


Your death (or that of another owner) could create another difficult financial problem.

The bank may be able to change lending terms or call an outstanding loan.


Even worse, if the loan is personally guaranteed, the bank may be able to demand repayment from your estate.

The terms of the personal guarantee may place the bank ahead of your spouse and children in the settling of your estate.


I may be able to help you protect your business’ value

I may be able to help you get the most for the time, money and emotion you’ve put into your business by protecting the value of your key employees:

– Calculate each key employee’s value

– Explore alternative solutions

– Gather information on insurance alternatives

– Determine how much exposure you have through personal lending guarantees

– Assist in keeping your plans up-to-date

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What I need from you

To assist you, I need some information: Who are your key employees? Have your calculated their value to your business?

Has that value been updated for today? Are you self-insuring the entire risk? What alternatives have you considered for

transferring part of the risk? Has there been an analysis of the business debts

that have been personally guaranteed? What’s your current situation?

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Next steps

Smart business owners hope for the best, but they plan for the worst. If something happens, they are prepared. Where would you like to start?

– Calculating your key employees’ value,– Considering self-insurance / professional

insurance alternatives, or– Analyzing your current risk exposure under

personal loan guarantees

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Documents

Do not put content on the brand signature area ©2014 Voya Services Company. All rights reserved. CN0904-12224-0916 Key Person protection