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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.

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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

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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.

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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

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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

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Insurance OptionsUnder 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

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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.

Age

W-2 Salary

Annual Premium

Average

Taxable Income

*

Death Benefit

(6.38 x W-2)

Owner

M 43 $350,000

$100,000 $62,298

$2,232,515

EE 1 F 45 $75,000 $20,315 $12,754

$478,500

EE 2 M 42 $37,500 $10,350 $6,146 $239,250

EE 3 M 37 $82,000 $19,007 $11,757

$523,560

EE 4 M 25 $25,000 $3,849 $2,100 $159,500

EE 5 F 33 $18,000 $3,198 $1,727 $114,840

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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 1 F 45 $478,500 $771 $0

EE 2 M 42 $239,250 $227 $0

EE 3 M 37 $523,560 $511 $0

EE 4 M 25 $159,500 $79 $0

EE 5 F 33 $114,840 $62 $0

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Examples

How a Plan Can Work

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Supplementary Retirement IncomeUsing 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.

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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.

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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

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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

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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.

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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

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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