PPT-239Our Mission: Allianz Life Insurance Company of North America is the trusted authority in insured retirement solutions for consumers working with a financial professional.

Allianz Life Insurance Company of North America

Executive Compensation StrategiesAn introduction to small-business owners

Agenda1. Executive bonus plans 2. Restricted executive bonus

arrangement (REBA)3. Next steps

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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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Fixed index universal life

Attributed to Andrew Carnegie

“Take away all my factories and my equipment.

Take away my wealth.

But leave me with my key people and in a short time I’ll have it all back again.” Andrew Carnegie

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DISCLOSURE OPTIONS (Copy + Paste into disclosure text box)Internal: For internal use only – not for public distribution.Client facing: Delete text.Fixed and Life products: For financial professional use only – not for public distribution.Variable products: For broker dealer use only – not for public distribution.

The death benefit is the main reason for purchasing life insurance

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

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Source: 1“Small World: Trends in the U.S. Small Business Market, LIMRA, 2013.

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

Benefits of fixed index universal life insurance (FIUL)

Income tax benefits Death benefit is income-tax-free

to beneficiaries. Policy has the potential to accumulate

cash value on a tax-deferred basis. Any available cash value may be accessed

through income-tax-free policy loans if the policy does not lapse or become a modified endowment contract (MEC).¹

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Keep in mind most life insurance policies require health underwriting and, in some cases financial underwriting.

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. Tax laws are subject to change and you should consult your tax professional. Policy loans are not usually subject to income tax unless the policy is classified as a modified endowment contract (MEC) under IRC Section 7702A. However, withdrawals or partial surrenders from a non-MEC policy are subject to income tax to the extent that the amount distributed exceeds the owner's cost basis in the policy. Loans, withdrawals or partial surrenders from a MEC policy are subject to income tax to the extent of any gains in the policy, and if the payment occurs prior to age 59 1/2, a 10% federal additional tax may apply.

For financial professional use only – not for use with the public.

HOW FIUL WORKS

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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.

POLICYHOLDER

Pays POLICYPREMIUMS

POLICY FEES & CHARGES Fees & charges used to fund

DEATH BENEFIT TO BENEFICIARIESAND OTHER VARIOUS EXPENSES

MAXIMUM PREMIUM

Minimum premium

Any available

CASH VALUE

Has the potential to

GROW

as more premium is p

aid

Cash value may be accessed via POLICY LOANS

AND WITHDRAWALS1

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Executive Bonus PlansUtilizing life insurance for your key employees

Why would you use life insurance with an executive bonus plan for your employees?Death benefit protection for your employeesRecruit and retain employeesCash value accumulation potential for future needs¹Flexibility – you choose who participatesNo IRS pre-approval – can be cost effectivePremium may be tax-deductible as a business expense

Life insurance as part of an executive bonus plan

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For more information on the tax implications of contributions to or distributions from this or any other employee benefit plan, consult your attorney or tax advisor.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. Tax laws are subject to change and you should consult your tax professional.

Executive bonus plans

How do they work with life insurance? Employee is the owner and designates

the beneficiary Employer pays the premium Premiums are considered salary Also known as Section 162

bonus arrangements

You should consult with an attorney and tax advisor to discuss your specific situation.

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The LOSS OF A VITAL EMPLOYEE

can have a much more

CATASTROPHIC IMPACT on the

survival of a small company than a

large one.1

1”Small World: Trends in the U.S. Small Business Market,” LIMRA, 2013.

How can you attract and retain key employees?

Executive bonus plansFOR WHOM?

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For more information on the tax implications of contributions to, or distributions from, this or any other employee benefit plan, consult your attorney or tax advisor.

Special concerns for some businesses Certain entities are “flow throughs”

for tax purposes Owners of these business entities

are taxed personally on all business income:- S Corporations- Partnerships- LLCs taxed as a partnership- Sole proprietors

For more information on the tax implications of contributions to, or distributions from, this or any other employee benefit plan, consult your attorney or tax advisor.

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Life insurance as part of an executive bonus plan: How it works

This hypothetical example is provided for illustrative purposes only. 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. Tax laws are subject to change and your clients should consult their tax professional.

Access available cash value through

loans¹ to SUPPLEMENT RETIREMENT

INCOME

Using a “double bonus”

Bonus employee enough to cover the taxes Results in no out-of-pocket costs to employee Also referred to as “grossed up” bonus Formula to determine this larger bonus

- Double bonus = Premium/1 – employee’s tax bracket- Example:

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Premium$100,000

Employee’s tax bracket

40%

DOUBLE BONUS$100,000

1 - .40 = $166,666

This hypothetical example is provided for illustrative purposes only.

Benefits to you, the employer/business owner

Premium payments are currently deductible if:- considered “reasonable” compensation- employer is not directly or indirectly a beneficiary- for certain employees of a publicly traded corporation, the deduction is

limited to $1 million per employee No contribution limits No administration costs No participation requirements No government reporting other than W-2 tax reporting No employer access to cash value accumulation potential Available cash value is not subject to corporate creditors Simple arrangement

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For more information on the tax implications of contributions to, or distributions from, this or any other employee benefit plan, consult your attorney or tax advisor. Keep in mind most life insurance policies require health and, in some cases, financial underwriting.

Benefits to the key employee

Income-tax-free death benefit Tax-deferred cash value accumulation potential Income tax-free access to any available cash value through

policy loans1

No premature distribution - federal additional tax for policy loans1

Secure from corporate creditors Flexibility to access any available cash value through policy loans1

Simple arrangement Portable

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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. Tax laws are subject to change and you are encouraged to consult your tax professional. Policy loans are not usually subject to income tax unless the policy is classified as a modified endowment contract (MEC) under IRC Section 7702A. However, withdrawals or partial surrenders from a non-MEC policy are subject to income tax to the extent that the amount distributed exceeds the owner's cost basis in the policy. Loans, withdrawals or partial surrenders from a MEC policy are subject to income tax to the extent of any gains in the policy, and if the payment occurs prior to age 59 1/2, a 10% federal additional tax may apply.

Employee can leave the company at any time and take the insurance policy

Employee must be insurable Premium payments = taxable

income to the employee No golden handcuffs Requires attorney to draft bonus

arrangement Cost of life insurance needs to be

considered Health and financial underwriting

Some additional considerations

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For more information on the tax implications of contributions to, or distributions from, this or any other employee benefit plan, consult your attorney or tax advisor.

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Restricted executive bonus arrangement (REBA)

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What is a REBA?

An executive bonus arrangement PLUS a GOLDEN HANDCUFF.A “golden handcuff” is a restriction on the life insurance policy that prevents the employee from access to the available cash value without the employer’s consent.

Two parts to a REBA at Allianz Executive bonus agreement drafted by an attorney Restricted policy agreement form from Allianz

Life insurance policy owned by the executive employee Executive is the owner of the life insurance policy Executive is the insured and names the beneficiary

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For more information on the tax implications of contributions to, or distributions from, this or any other employee benefit plan, consult your attorney or tax advisor.

Who is a REBA for?

NON-OWNERS of the businessWhy not the owner? Owners are already tied to

the business Use Executive Bonus with the

owners of the business Top hat/highly compensated

executives

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For more information on the tax implications of contributions to, or distributions from, this or any other employee benefit plan, consult your attorney or tax advisor.

Allows you to select which employees you wish to reward

Rewards key employees for services rendered to your business

Builds loyalty to your business – creates a “golden handcuff”

Provides employee’s family with a death benefit

Provides a potential income tax deduction to employer

Key employee has ownership of cash value life insurance with potential access to available cash value via policy loans¹

Some REBA advantages

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You should consult with your own tax and legal advisors for the tax and legal ramifications of using this employee benefit.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. Tax laws are subject to change and your clients should consult their tax professional.

Some additional considerations of a REBA

Employer does not have ownership of, or any rights to, the life insurance policy Employee is taxed income equal to the premiums paid with the bonus money

received from the employer Employee may need to obtain employer’s consent to access any available cash

value Costs of hiring an attorney to draft the legal document Costs of purchasing the life insurance policy Not available if the employee is uninsurable and has no insurable interest in an

insurable person¹

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You should consult with your own tax and legal advisors for the tax and legal ramifications of using this employee benefit strategy.¹Keep in mind that most life insurance policies require health and, in some cases, financial underwriting.

How does a REBA work at Allianz?

The business pays the premium to fund a life insurance policy with cash value accumulation potential

Premium paid is treated as a bonus paid to the employee

The executive employee is owner the of the policy and names the beneficiary

The employer and employee sign two documents: Executive bonus agreement drafted by attorney

Restricted policy agreement – an Allianz Life Insurance Company of North America form

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You should consult with your own tax and legal advisors for the tax and legal ramifications of using this employee benefit.

How a REBA works at Allianz

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This hypothetical example is provided for illustrative purposes only. These characters are fictional and not actual Allianz clients.

Summary

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1. Executive bonus plans

2. Restricted executive bonus arrangement (REBA)

3. Next steps

Work with your team of professionals to see if fixed index universal life insurance could be part of your business-planning strategies.

The next step

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.comProduct and feature availability may vary by state.

DisclosuresAllianz Life Insurance Company of North America (Allianz)

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Products are backed by the financial strength and claims-paying ability of Allianz Life Insurance Company of North America. Product and feature availability may vary by state.