An introduction to small-business owners

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BUSINESS CONTINUATION STRATEGIES using life
insurance

• An introduction to small-business owners
• One-Way Buy-Sell Agreements

• PPT-263 1/2014

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Agenda

1. Why business continuation planning?
2. One-way buy-sell agreements

Before we begin

• This presentation is designed to provide general
  information on the subjects covered. Pursuant to
  IRS Circular 230, it is not, however, intended to
  provide specific legal or tax advice and cannot
  be used to avoid tax penalties or to promote,
  market, or recommend any tax plan or arrangement.
  Please note that Allianz Life Insurance Company
  of North America, its affiliated companies, and
  their representatives and employees do not give
  legal or tax advice. We encourage you to consult
  your tax advisor or attorney.

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• Why business continuation planning?

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Why business continuation planning?

• Try answering the following questions
• What will happen to your business when
• you retire?
• Do you have a business successor lined up and
  ready to take over?
• Will your entire business or a share of your
  business need to be sold?
• Do you already have a buyer and what is the
  price?
• What if you died today?
• What would be the consequences to your business
  partners, employees, customers, debtors,
  creditors, and most importantly, your family and
  beneficiaries?

• Many small businesses purchase insurance products
  to provide FINANCIAL PROTECTION for the business
  owner, key employees, or the business itself.1

1Small World, Trends in the U.S. Small Business
Market, LIMRA, 2013.
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Potential pitfalls survivors may face after the
death of a business owner
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How can life insurance fit into business
succession planning?

• A death benefit provided by life insurance can be
  a vital part of your business succession planning
  and employee retention.
• Fixed indexed universal life (FIUL) insurance can
  also help while providing potential tax advantages

Some common uses of life insurance in business
succession planning
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The death benefit is the main reason for
purchasing life insurance

• Small businesses REQUIRE MULTIPLE TYPES OF
  FINANCIAL PROTECTION including
• Personal coverage for the business owner
• Financial safeguards for the business
• Insurance and retirement benefits for the
  employees1

• It passes income-tax-free to the beneficiaries
  and can be used for
• Income replacement for primary wage earners
• Business succession
• Mortgage and other debts
• Estate tax coverage

Source 1Small World Trends in the U.S. Small
Business Market, LIMRA, 2013.
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HOW FIUL WORKS
MAXIMUM PREMIUM
Cash value may be accessed via POLICY LOANS AND
WITHDRAWALS1
Any available
CASH VALUE
Has the potential to GROW as more premium is paid
Pays POLICY PREMIUMS
Minimum premium
POLICY FEES CHARGES
Fees charges used to fundDEATH BENEFIT TO
BENEFICIARIESAND OTHER VARIOUS EXPENSES
POLICYHOLDER
Policy loans and withdrawals will reduce the
available cash value and death benefit and may
cause the policy to lapse, or affect guarantees
against lapse. Additional premium payments may be
required to keep the policy in force. In the
event of a lapse, outstanding policy loans in
excess of unrecovered cost basis will be subject
to ordinary income tax. Tax laws are subject to
change and your clients should consult a tax
professional.
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• One-way buy sell agreements

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One-way buy-sell agreement in action
Barb purchases an FIUL policy on Sams life
sufficient to meet her obligations under the
buy-sell agreement. Barb pays the premiums, and
is the owner and beneficiary of the policy.
Sam (sole owner of business) commits to selling
his business at an agreed value upon a triggering
event(s) (e.g., death, retirement, disability,
etc).
Barb (buyer) agrees to purchase the business
Buy-sell agreement
at an agreed value upon the triggering event(s).
You should consult with an attorney and tax
advisor to determine what may be appropriate for
your situation.
Hypothetical example is for illustrative purposes
only. These characters are fictional and not
actual Allianz clients.
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One-way buy-sell agreement in action
Sam or his estate will receive funds from Barb.
Buy-sell agreement
Sam or his executor will transfer the business
interest sold to Barb according to the agreement.
Barb retrieves any available cash value from the
life insurance policy through policy loans1 or
receives the death benefit to meet her obligation
within the agreement.
Hypothetical example is for illustrative purposes
only. These characters are fictional and not
actual Allianz clients. 1Policy loans and
withdrawals will reduce available cash values and
death benefits, and may cause the policy to lapse
or affect any guarantees against lapse.
Additional premium payments may be required to
keep the policy in force. In the event of a
lapse, outstanding policy loans in excess of
unrecovered cost basis will be subject ordinary
income tax.
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Some advantages for the business owner in a
one-way buy-sell agreement
There are unique BUSINESS OWNER ADVANTAGES to a
one-way buy-sell agreement.

• Business owner receives value of their business
• Maintains confidence of creditors, employees, and
  customers
• Known buyer established
• Provides liquidity for payment of potential
  estate taxes and settlement expenses
• Estate receives a step-up in basis to the current
  market value of the business at death
• Buy-sell agreement may set the value of the
  business in owners estate

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Some advantages for the buyer in a one-way
buy-sell agreement
There are unique BUYER ADVANTAGES to a one-way
buy-sell agreement.

• Buyer receives the opportunity to own the
  business.
• Buyer has the ability to purchase the business
  using a life insurance death benefit or any
  available cash value accumulation through policy
  loans.1
• Life insurance policy death benefit is federal
  income-tax-free to the beneficiaries.

1Policy loans and withdrawals will reduce
available cash values and death benefits, and may
cause the policy to lapse or affect any
guarantees against lapse. Additional premium
payments may be required to keep the policy in
force. In the event of a lapse, outstanding
policy loans in excess of unrecovered cost basis
will be subject to ordinary income tax.
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One-way buy-sell agreement Some additional
considerations

• The successor buyer needs funds to pay the life
  insurance premiums.
• The business owner must qualify through health
  and, in some cases, financial underwriting.
• There are attorneys fees when drafting the
  one-way buy-sell agreement.
• Need to identify business assets since business
  and personal assets are not legally separate for
  a sole proprietorship.
• Agreement may limit the ability to use the
  business as credit collateral.

SPECIAL considerations of one-way buy-sell
agreements
Consult with your attorney and professional tax
advisor to discuss the possibilities for your
situation. Ask your financial professional for
more information on how life insurance works
(including fees and expenses) and which product
may be appropriate for your buy-sell strategy.
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The next step

• Work with your team of professionals to see if
  fixed index universal life insurance can help
  with your business-planning strategies.

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DisclosuresAllianz Life Insurance Company of
North America (Allianz)

• Guarantees are backed by the financial strength
  and claims-paying ability of Allianz Life
  Insurance Company of North America.
• The Employee Retirement Income Security Act
  (ERISA) may apply. Be sure to consult your tax
  advisor or attorney regarding your own situation.
• Products are issued by Allianz Life Insurance
  Company of North America, 5701 Golden Hills
  Drive, Minneapolis, MN 55416-1297. 800.950.1962
  www.allianzlife.com
• Product and feature availability may vary by
  state.

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