The Kai-Zen Financed 162 Plan & Trust

1. The Kai-Zen Financed162 Plan & Trust An economically efficient plan to buypermanent death benefits

2. What Does Kai-Zen Stand For? Translation fromJapanese: • Literal:“ significant improvement at little to no incremental cost” • Zen = good • Kai = change The reality is that every business changes, every market changes and every industry changes. But there is one fundamental truism in business that always remains - “CASH is KING!” Kai-Zen allow companies to reward executives AND preserve their cash flow versus other 162 programs on the market

3. So, What istheKai-Zen Plan? • A 162 strategy for business owners,partners and key executives • Where financing is used to matchthe contributions made by theemployer or employee to improvethe outcome • With matching contributionswhat do you get? • The same benefits for less money - or - • The same money for more benefits

4. What DoesKai-Zen Provide? • Permanent life insurance • Supplemental retirement income • Long term care • Money in the event of chronic illness • Money in the event of terminal illness • Peace of mind A way of using someone else’smoney to augment your abilityto obtain:

5. Why Do a 162 Plan? • Very little oversight and filing issues e.gno 409a or ERISA issues • Bonuses may be deductible to the employer • Employer can pick who gets the benefit • The employer may change the bonus amount each year • Flexibility

6. What Does The Employer Want? • To recruit, retain and reward keypersonnel to grow their business • Offer something more meaningfulthan health care and 6% matching401K contributions • Offer very attractive benefitsthat are different from all theircompetitors • Stop the cost spiral/sustainability • Flexibility to adjust with the business needs

7. What Does the Employee Want? • A comprehensive benefitspackage that covers theirkey needs: • Permanent life insurance • Supplemental retirement income • Disability • Long Term Care • Access to the cash if needed early • Keep your cash if you don’t use the benefits • Peace of mind

8. What Does the Employee Want? • An answer to the question:“How do I pay for all these benefits?” • A method to fend off Murphy’s law (everything that can go wrong, will) – they won’t have the right type of insurance when they need it.(e.g. They bought term insurance instead of disability – and then became disabled)

9. How Much Do They All Cost? Sample: 50, male, standard health • Example Executive – earning $250,000 per year • Take home pay after tax, etc. – $165,559 • Costs for benefits: Life Supplemental retirement Disability Long term care TOTAL • $16,000 (GUL) • $48,000 • $4,800 • $3,600 • $72,400 per year • This excludes every day costs like car, mortgage, electricity, etc. • Most people contribute only enough to get the minimum benefitse.g term insurance or minimum disability – no long term care, etc. • Failure to cover these benefits adequately wipes out most executives retirement funds (which they believe is underfunded inthe first place)

10. Ask Yourself These Questions: • Did you buy a permanent policy or term?Less than 1% of term policies pay out a death benefit.(wikipedia) • Have you saved enough for retirement?Americans 10 years from retirement have, on average, $78K even though they need $900k to maintain the same life style.(Employment Benefit Research Institute) • What happens if you become disabled?1/3 of all Americans between 35 to 65 will become disabled for 90 days or more, 1 in 7 over 65 will become disabled for more than 5 years.(American Council of Life Insurance) • Will I need Long Term Care?41% of Americans will need LTC before age 65, 70% after age 65 will need LTC with an average stay of 2.4 years and an average annual cost of $75K. (US Dept. of Heath and Human Services)

11. How Does Leveraging Help? More cash to buy more benefits = Bonus Portion = Additional Leverage premium 1 2 3 4 5 6 7 8 9 10 Year Leveraging allows more cash to be put into a policy for a longer period resulting in higher benefits - even taking loan repayment into account. You can now use savings to purchase other benefits or significantly increase your current benefits. Employee/employer liability is limited to the funding pattern (shown in blue).The recourse on the loan is not to employer or employee but to the Trust.

12. How Does It Work? • Very Simply! This is a partial fund - partial finance transaction. The Contribution And Policy Are The Sole Collateral For The Transaction. • The employer pays the executive a bonus. The employee then makes a contribution (the bonus amount or more) to the Trust (the contribution is considerably less than would normally be required due to the additional contribution towards the policy by the lender) • The Master Trust bundles multiple policies to obtain a loan facility at optimal loan pricing. However, individual policies are segregated within the sub trust, so benefits are not comingled.

13. How Does It Work? • The cash growth along, with future contributions (depending on plan) within the policy, sustains the security of the loan and eventually pays off the loan in full leaving the death benefit intact. • Once the loan is paid off, there is a potential for excess income distributions from the policy which can be used to purchase additional benefits (e.g. supplemental income for retirement, health care, etc)

14. How Does It Work? Executive pays Contributions Re-insures Risk Executive A Individual Trust Insurance Company MasterTrust Each policy issegregated withindividual annualstatement Executive B Individual Trust Executive C Individual Trust Premium Finance Lender Executive D Individual Trust Leverages to Increase Benefits Benefits paid to participantsand/or their beneficiaries

15. Contribution Funding Options • 1 pay • 2 pay • 3 pay • 4 pay • 5 pay Once your contributions stop the freed up cash can be used to fund / supplement benefits you could not previously afford

16. So Lets Look At A Proposal

17. Sample: Male 50 Standard Health

18. Sample: Male 50 Standard Health

19. Sample: Male 50 Standard Health (Continued)

20. Sample: Male 50 Standard Health (Final) Note totalincome stream

21. Lets Talk Risk. How Believable is the Policy Return? First you need to understand how the product works!

22. Difference Between Regular UL (Fixed) Policy and Index UL Policy $105 General Account Yield 5% $100 $100 General Account IUL swaps GA fixed return for an option $113 Option Return 0% - 13% Return Risk 0-13% $100 $100 General Account Principal Protected NOTE: Policy expenses have been ignored to help understanding. Note the option budget is from the bond yield and so goes up or down based on underlying interest rates/ bond yields.

23. Example IUL Over Time IUL a/c value $126 = market returns IUL does not lose in market drop Principle is Reset IUL a/c value $113 IUL a/c value $113 Market Grows 20% Market Loses 40% Market Grows 25% IUL a/c value $100 $100 $120 $72 $96 Alternative: Invested directly in S&P

24. S&P As an Example • During the period 1930 – 2011:The S&P 500 Index averaged an annual return of 5.92% • Same time period, remove all negative years andinsert 0% (like an IUL) for those years. Average return = 11.46% • Good IUL’s will capture approx. 80% - 90% of their market - in this example your return wouldbe around 9.16%.

25. S&P As an Example • Average Cost of loan was 6.35%(average 1 year LIBOR +1.75%)approx. = risk spread between IULproduct and loan cost of 2.8% • Note: In NIW designs absolute returnis less important than the difference between policy return and cost of money (the spread) • While history does not repeat itself exactly, trend patterns do and the risk spread typically remains on averagethe same

26. Designed Using Current Assumption • Shows the Current 20 year look back average (without adjusting caps to historical actual caps which would show higher performance) • Loan assumptions are using bank 15 year (increasing) forecasts of 1 year LIBOR +1.75% But…

27. … Also Designed Using Stress Tests • Stress tested as if we were in the Great Depression environment (7 of the first 10 years are min. return) • Technically the design can withstand 13-15 years of minimum return (0%) in a row, depending on product, before policy collapse • AND stress tested as if we were in the 1980’s environment where LIBOR reaches almost 17%+ spread • Cannot handle prolonged stagflation (10 plus years) without hedging (an option we are reviewing)

28. What Happens To My Contribution If I LeaveMy Current Employer Before Year 5? • This benefit is portable, you can take the policy with you to your new employer and continue the planned contributions • Pay off the loan early and keep the cash in the policy providing death benefit until it runs out • Pay off the loan and 1035 to another policy • Pay off loan and keep policy in force to using the supplemental cash, if any, or to take advantage of the other benefits

29. What if You Want to Exit Early?

30. Financial Impact Of Early Termination If you terminated the plan in year 4 and paid off the loan, the remaining cash value would keep the policy in force until age 76. If you had self funded it would have cost you $431,541 out of pocket

31. 30 Year Old Athlete Example

32. Client Age 30

33. Client Age 30 (Continued)

34. Client Age 30 (Final)

35. Client 40 Year Old Example

36. Client Age 40 (Sample)

37. Client Age 40 (continued)

38. Client Age 40 (Final)

39. Additional Benefits CreatedBy Riders

40. The “New” Approach Die Too Soon Live Too Long BecomeTerminally Ill

41. Rider Portfolio Accelerated Benefits* • Terminal Illness • Chronic Illness • Critical Illness Riders are optional, may require an additional premium and may not be available in all states. *Use of Accelerated Benefits riders reduce the policy’s cash value and death benefit and may result in a taxable event.

42. Accelerated Benefits Riders ABR 1 – Terminal Illness(100% of DB up to $1million) • Resulting in death withintwo years* • Lump-sum distribution(discounted from death benefit) • Funds can be used for anything • No additional cost *One year in PA, CT or VT. Please see the ABR disclosure forms for more information. Form series 8052(0798)

43. Accelerated Benefits Riders ABR 2 – Chronic Illness(2% of DB monthly up to $20K) • 2 of 6 Activities of Daily Living • Bathing – Eating • Continence – Toileting • Dressing – Transferring • Cognitive Impairment • Short-term or long-term memory impairment • Loss of orientation to people, places or time • Deductive or abstract reasoning impairment Form series 8095(0399)

44. Accelerated Benefits Riders ABR 2 – Chronic Illness(continued) • 90-day waiting period • Must be in force for twoyears before benefitsbecome available • Funds can be used for anything • No additional cost Form series 8095(0399)

45. Accelerated Benefits Riders ABR 3 – Critical Illness(100% of DB up to $1mill) • Covered Illnesses • Heart Attack • Stroke • Cancer* • End stage renal failure* • Major organ transplant • ALS (Lou Gehrig’s disease)* • Blindness *Upon diagnosis. Please see the ABR disclosure forms for more information. Form series 8165(0703)

46. Accelerated Benefits Riders ABR 3 – Critical Illness(continued) • Available 30 days afterpolicy issue • Lump-sum distribution(discounted from death benefit) • Funds can be used for anything • No additional cost Form series 8165(0703)

47. BUY Conventional GUL Pay 100% of premiums for guaranteed death benefit to life expectancy costs: Buy IUL using your money Pay 100% of premiums forDeath Benefit and potential supplemental retirement costs: Contribution to Kai-Zen Plan costs: $219,351 Death benefit, potential supplemental retirement income Lump sum distribution for chronic illness, terminal illness,and critical illness Summary of Benefits forMale 50 Standard Health $575,388 $628,265

48. Client andApplication Profile

49. Who Qualifies? • The client must need a permanent death benefit of $1M or more • Must be 65 or younger for Death Benefit • Must be 55 or younger for revenue flow • Standard or better health • Earn at least $100,000 per year but ideally $250,000 • Must be an executive of the employer,partner or business owner

50. Target Markets • Privately held companies –Small/Medium Business Owner(s) • Partnerships – partnerbuyout/benefits • Law Firms • CPA Firms • Doctors • Dentist • Consulting firms • Athletes • Family Businesses – succession planning/ benefits