Three ways term insurance can help protect your business

With an affordable pricing structure and the ability to convert to a high quality permanent policy, there’s a variety of ways AuguStar Life’s Term Plus policies can go to work for business owners.

Here are three.

Prepare for business continuation

A buy-sell agreement is a contract providing for the sale of a business ownership interest when a specified event occurs — generally, the death of one of the business owners. Term life insurance can be an ideal, budget-friendly funding vehicle in a buy-sell agreement.

If an owner dies, the death benefit proceeds can be used to help purchase the business interest per the buy-sell agreement.

Each owner might consider an affordable term policy with a face amount large enough to cover the agreed-upon purchase price (subject to insurability factors like age and health of the insured).

A fully funded buy-sell agreement can help:

Predetermine the price at which the buyer agrees to purchase, and the owner agrees to sell, their interests in the business
Create a market for each owner’s share of the business
Provide money to fund the purchase at the exact time it is needed
Establish the business’ value for federal estate-tax purposes

Protect against the loss of a key employee

Successful businesses are built on a variety of assets including equipment, inventory, real estate, accounts receivable, cash, goodwill, but most importantly, key people. The death of a key person could have a devastating effect on the future of your business.

A key person is anyone who significantly contributes to business success and whose death would result in a tangible loss to the business. Key person insurance helps to cover your business for the death of a key person and the loss of that individual’s skill and expertise.

To put key person protection in place, a term policy is purchased with a death benefit amount based on the employee’s value to the organization (most often, a multiple of salary). The business is both policy owner and beneficiary. Should the key person die, the death benefit proceeds are used to offset business losses such as sales, productivity, and credit.

Reward your key employees with a fringe benefit plan

To attract and keep innovative, quality people, you need to offer quality fringe benefits. Fringe benefits don’t have to be difficult or complicated. In fact, a simple plan can often be the best.

An executive bonus plan allows you to choose the participants in the plan and is typically simple to administer. The key employee owns the policy and selects a beneficiary, and your business pays the premium directly or indirectly through a salary bonus. The bonus amount is typically tax deductible by your business as an ordinary and necessary expense. The same bonus amount is taxable to the employee as ordinary income just like any other cash bonus. In addition, you always have the option to increase bonus payments to offset your employee’s income tax liability.

You can start the plan using an AuguStar Life Term Plus policy. In later years, the employee has the option to convert the term policy to permanent insurance.

We can help

We can help you use term insurance to protect your business. Contact your financial professional about business planning today.

This material provides general information that is designed to be educational in nature and is not intended as specific tax or legal advice to any particular individual nor the law of any particular state. Please seek the advice of a qualified tax or legal professional for your specific situation.

FlexTerm Series XII policies ICC18-TR-1/1U, Plus ICC18-TR1.P/1U.P) and any state variations are underwritten and issued by, and guarantees based on, the claims-paying ability of AuguStar Life Insurance Company. Premiums are based on the age of the insured at nearest birthday and specified underwriting classification and is subject to change without notice. Premiums for issued policies may be different than a quote premium based upon actual underwriting classification. The premium stated in the policy is guaranteed to remain level for the term of the policy. Term products convertible to the end of the level term period or to the policy anniversary date nearest the insured’s 70th birthday, whichever occurs first. Conversion options vary by term product. The policy includes certain limitations during the first two policy years.

Products issued by AuguStar Life Insurance Company, member of Constellation Insurance, Inc. family of companies. Product, product features and rider availability vary by state. Guarantees are based on the claims-paying ability of the issuer. Issuer not licensed to do business in New York.

Retain key employees with an executive bonus plan

Successful business owners know the key to successful business is their people. An executive bonus program funded with permanent life insurance can be a great way to help business owners recruit, retain, and reward key employees.

How does it work?

An executive bonus plan allows business owners to choose the participants in the plan and is typically simple to administer. Under the plan, the key employee owns life insurance on his or her life and selects a policy beneficiary. The business pays the premium (typically through a salary bonus) in accordance with a written agreement with the employee. The employee typically pays tax on the bonused premium amounts.

Benefits of an executive bonus plan:

Provides a quality fringe benefit for key employees
Typically simple to administer
Allows flexibility as to plan participants
May provide the business with a current tax deduction
Offers the employee death benefit protection and, when permanent life insurance is used, accumulated cash values

The employee enjoys the security of life insurance coverage while having access to the policy’s cash value in a standard executive bonus design. And when properly structured, cash bonused to pay the policy premiums is tax deductible to your business assuming IRS guidelines are met.

If tax-free loans are taken and the policy lapses, a taxable event may occur. Loans and withdrawals, if taken, will reduce the death benefit. Withdrawals (partial surrenders) and loans from life insurance policies that are classified as modified endowment contracts may be subject to tax at the time that the withdrawal or loan is taken and, if taken prior to age 59½, an additional 10% federal tax may apply. Always consult with a tax advisor regarding your particular situation.

Products issued by AuguStar Life Insurance Company, member of Constellation Insurance, Inc. family of companies. Product, product features, and rider availability vary by state. Guarantees are based on the claims-paying ability of the issuer. Issuer not licensed to do business in New York.

Three things to consider with indexed universal life coverage

Indexed universal life (IUL) has become a popular form of life insurance protection in recent years. That is likely due to its ability to provide you with death benefit protection for your loved ones along with the following features:

flexibility of payments – you have the option to change the amount of premium you pay
adjustable protection – if you have changing life circumstances, you can adjust the value of what your policy is worth
Growth potential – your policy’s cash value can grow based on the performance of market indices
Protection from losses – although your policy’s cash value can increase based on market performance, you can’t lose money as a result of market losses

While these are some of the standard benefits you can expect, not all IUL policies are the same. There are different benefits and features among them, and it is important you understand how all of these will impact your IUL policy. Most life insurance policies are big purchase decisions, so it’s highly recommended that you speak to your financial professional with any questions you have. While these may not be all the questions that you may have, here are three things you should definitely ask them when looking at an IUL.

What are your options for accessing your cash value?

The cash value that accumulates within your IUL policy can be accessed to supplement your retirement income, fund a college education or pay for any unexpected expenses. The two methods to access the cash value are through policy loans or full or partial surrenders of the policy. Your IUL policy may offer different types of loans. Make sure you discuss the pros and cons of the loan types available to you with your financial professional. A full or partial surrender of your policy has very different implications and should also be discussed.

What impact will fees have on your IUL’s cash value?

With any IUL policy you are considering, you need to ask about fees. You may choose to select optional features with your policy known as riders. These can provide living benefits that customize how the policy works for you. They may include financial help if you are chronically or terminally ill, access additional coverage for yourself in future years, extend life insurance coverage to your children and more. Knowing the cost any additional riders you select is an important discussion you need to have with your financial professional.

Different IUL policies have different levels of internal fees. The fees come from different options on a policy, such as boosting potential policy performance or offering additional protection options. One thing they all do is reduce cash values. AuguStar Life’s Virtus Indexed Universal Life II policy is focused on lower expenses to help make a better policy experience for most clients.

How will an IUL perform in different markets?

One way a financial professional can help you understand the differences between one IUL policy versus another is to run an illustration. This hypothetical scenario can show you how the policies could perform for you over time, especially in regards to the build-up of cash value within the policy and its distribution. Because you have the option to allocate your IUL premiums into an index based account (such as the S&P 500 or Russell 2000) you can see the potential increase in the cash value.

While it’s easy to get excited over any IUL’s potential during positive market conditions, it’s also important to know what might happen during challenging market conditions. Remember how we just said you need to consider fees? Imagine a few consecutive years where the markets are down. While your IUL may have a 0% minimum interest crediting rate, you have to consider any fees your policy may incur. A bad year of returns plus added fees for your policy could be an unwelcome surprise. A lower fee product like AuguStar Life’s Virtus IUL can help reduce costs during years of zero performance.

An IUL can be a great option for many seeking death benefit protection, flexibility and the opportunity to build cash value for their future. It is safe to say that when you take an IUL and add all of its available options, it can make for a very complex life insurance product.

Understanding all of the ways it can help you can seem overwhelming. It really is important to work with your AuguStar financial professional to determine what IUL works best for you now, while also giving you the flexibility to meet any changes in your future years. They will help answer the questions above and more when helping you determine if an IUL is for you.

The S&P 500^® Index is a product of S&P Dow Jones Indices LLC (“SPDJI”), and has been licensed for use by the AuguStar Life Insurance Company.

Standard & Poor’s^®, S&P^® and S&P 500^® are registered trademarks of Standard & Poor’s Financial Services LLC (“S&P”); Dow Jones® is a registered trademark of Dow Jones Trademark Holdings LLC (“Dow Jones”); and these trademarks have been licensed for use by SPDJI and sublicensed for certain purposes by the AuguStar Life Insurance Company.

The AuguStar Life Insurance Company’s Orbiter® annuity is not sponsored, endorsed, sold or promoted by SPDJI, Dow Jones, S&P, their respective affiliates, and none of such parties make any representation regarding the advisability of investing in such product(s) nor do they have any liability for any errors, omissions, or interruptions of the S&P 500^® Index.

How much will I need for retirement

Search online for “how much will I need for retirement?” and you’ll be flooded with results — ranging from articles with general guidance to highly detailed calculators. The estimates they’ll produce will be all over the map, too.

Why is answering this question so tough? Because no formula or rule of thumb can predict what your retirement experience will be like. To find the answer, you first have to define what retirement means to you.

It starts with a picture of retirement

By taking the time to clearly outline the retirement lifestyle you’re trying to create, it becomes easier to work backwards and identify the financial resources it will take to make that future possible.

Yes, looking at your current budget and lifestyle can be a helpful starting point, but only if your vision for retirement is similar to the life you’re living today. Consider changes such as moving to a new location with a different cost of living and taxes, which will impact the resources you’ll need.

Realistically, that picture will change over time — and the amount you’ll need to save will change with it. That may be because your own dreams for retirement evolve. Or, it could be that outside factors (like longevity and inflation) can complicate calculating what you’ll need.

Regularly reviewing your own goals for retirement with a financial professional, along with outside factors that could impact your savings approach, is crucial for keeping your strategy on track.

Think “nest eggs” instead of “nest egg”

Your financial needs in retirement will be a mix of different types of expenses — some of them predictable and recurring (like your monthly living expenses), and others less predictable in amount and frequency (think of a vacation, a large purchase, or hospital bills).
That makes trying to calculate a total savings target for retirement really tough. Instead, it might make more sense to break down your goals into different categories.

What will you need for regular income and recurring expenses?
What large or infrequent expenses do you need to plan for? (Vacations? Major purchases? An emergency fund?)
What resources will you need for health– and long-term care needs? (Keeping in mind that while resources may be needed at any time, these expenses tend to escalate later in retirement)
What goals do you have for your legacy that need to be accounted for and protected?
Retirement calculators can also help as a starting point.

By breaking your expenses into categories, you can also more easily track the progress you’re making towards each goal, and see any gaps and shortfalls that need to be addressed.

Match the right tools to the job

Another advantage of categorizing needs is that you can better evaluate whether your assets are properly positioned. It’s not just about how much you’re saving — it’s also about where you’re saving for the future.

A hammer is great for nails, but terrible for screws. Planning for retirement is no different. Just because a product is labeled as a retirement savings tool doesn’t mean it’s capable of meeting all of your retirement needs.

Products designed to accumulate money may not be ideal for creating lifetime income, or covering medical expenses in retirement. Other products may have unique features or tax benefits that make them better equipped to solve your unique retirement challenges.

By working with a financial professional, you might discover a mismatch between the tools and strategies you’re currently using versus the goal you’re trying to achieve. And, they might be able to suggest solutions that will help your money last throughout retirement.

Tailored retirement benefits for your executives

For many business owners, there is a lot of investment that goes into key executives. As an incentive to encourage the executive to stay long-term with your company, many business owners enhance executive benefits with a supplemental executive retirement plan (SERP).

A SERP lets the executive know they are a valuable part of your team while also encouraging them to stay with your company.

How does a SERP work?

You promise to pay the employee a retirement income stream or lump sum benefit if he or she stays with the company until retirement. You also may provide disability and/or death benefits under the plan.

A SERP is often called a “golden handcuff” plan. When structured as a forfeitable plan, the employee generally forfeits all business if he or she leaves your business early.

Funding a SERP

For many business owners, life insurance is the ideal informal funding mechanism for many SERP agreements.

As a business-owned policy, the company has total control over the policy and flexible, tax-advantaged¹ access to its cash value and income tax-free² death benefit. The company can then use the policy to help meet its obligations under the SERP.

Flexible and selective

SERPs are flexible and allow you to pick and choose participants. A SERP has only minimal reporting requirements, and there are no contribution limits.

Comparison of SERPs vs. qualified plans

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	SERP	Qualified plan
Contributions are currently deductible by employer	No	Yes
Contributions are currently taxable to executive	No	No
Employer deducts payment of retirement income	Yes	No
Executive taxed on retirement income	Yes	Yes
ERISA reporting requirements	Minimal	All
Employer control	Yes	Yes
Employer cost recovery	Yes	No
Ability to select participants	Yes	No

If you have key executives you hope to retain long-term, a SERP is a very useful method of doing so. For more information, contact your financial professional.

¹ If tax-free loans are taken and the policy lapses, a taxable event may occur. Withdrawals (partial surrenders) and loans from life insurance policies classified as modified endowment contracts may be subject to tax at the time the withdrawal or loan is taken and, if taken prior to age 59½, an additional 10% federal tax may apply. Withdrawals and loans reduce the death benefit and cash surrender value.

² Assuming compliance with IRS rules, including applicable notice and consent requirements under Internal Revenue Code Section 101(j).

Insuring the sale of your business

You have invested so much to make your business a success. Have you considered what steps you need to take if you want to retire or need to sell the business? Planning for business continuation can help you harvest the value of your business when you leave the company.

How a buy-sell agreement works

A buy-sell agreement is a legal agreement that provides for the sale of business ownership interest upon the occurrence of a triggering event — such as the owner’s death, disability, or retirement.

You select who buys your business (possibly any co-owners), determine a fair purchase price and the way you, or your heirs, will be paid for your share.

There are different types of buy-sell agreements, but most use life insurance policies in some way as a funding source. Life insurance can be used to help pay off your business interest to you, or heirs, using the death benefit and potential cash value (from permanent life insurance).¹

Buy-sell agreements can help:

Secure an orderly transfer: You and those purchasing pre-determine specific outcomes to create stability for your business and peace of mind for you.
Access cash values for purchase: Using permanent life insurance can build accessible cash value that can help with the purchase price of the business.
Lock in fair market value: Buyers and sellers agree to a fair price now, rather than waiting until a future setback could potentially reduce the asking price.

You should work with an attorney to implement a buy-sell agreement. Your attorney and tax professional can help make sure the arrangement aligns with your long-term planning goals.

Don’t overlook the benefits of converting term life insurance

One of the benefits of term life insurance is that it can provide affordable protection for your loved ones for a short period of time (typically 10-20 years). A downside is that since the coverage was only designed to be temporary, the price of the protection will start to increase after the original term is up.

Some term policies offer life insurance conversion privileges, which is the right to turn your temporary coverage into permanent protection.

While there may be limits on this feature — including how long the option to convert lasts, age restrictions, and guidelines on what permanent life insurance policies can be chosen — here are a few reasons why you might consider converting to permanent life insurance, if you have the option.

Benefits that can last a lifetime

With permanent life insurance, you own a policy that can last for your lifetime. You’ll always have it as long as your premiums are paid. Your policy is private and protected from probate and creditors to some degree in every state.

Your premiums now help build cash value

While traditional term insurance can have lower premiums, it doesn’t build cash value. Depending on the type of permanent life insurance policy you choose, you’ll have different opportunities to build cash value.

Certain whole life insurance policies allow for dividends and compound cash value growth. Indexed universal life policies allow you to be more flexible with the premium you pay and offer different options to build cash value and earn interest.

The accumulation of cash value can serve many purposes during your lifetime, including supplementing your retirement income, helping cover education expenses, and serving as useful emergency fund.*

Additional underwriting may not be needed

For most conversions, no additional medical underwriting is needed, allowing for your new permanent policy to be issued sooner. That’s a good thing, because your health could have changed from the time you qualified for your term life policy. However, be aware that some requests, like increasing the death benefit or adding on certain optional features, can trigger additional underwriting requirements.

Convert to meet your need

You typically convert only what you want to a permanent life insurance policy. For example, you may have purchased a $1 million term insurance policy when your children were young. If they are grown and on their own now, you may want a smaller amount of insurance.

Your life insurance conversion amount may be eligible to be less than what your death benefit was for your term life policy. You may be able to keep the rest of the unconverted term coverage in place (and convert that portion later, too) if you choose to. The earlier you convert, the more time you have to take advantage of the benefits of permanent life insurance.

Talk to your financial professional or insurance company to see if you may be eligible to convert some, or all, of your term insurance coverage into permanent insurance.**

*If tax-free loans are taken and the policy lapses, a taxable event may occur. Loans and withdrawals, if taken, will reduce the death benefit. Withdrawals (partial surrenders) and loans from life insurance policies that are classified as modified endowment contracts may be subject to tax at the time that the withdrawal or loan is taken and, if taken prior to age 59½, an additional 10% federal tax may apply. Always consult with a tax advisor regarding your particular situation.

**Conversion options vary by term product.

Boost income with annual raise

The first check is the worst check

When your work life ends and retirement begins, raises go away. Unfortunately, medical and cost-of-living expenses are likely to keep increasing. The optional Ion GLWB riders can help alleviate this worry by guaranteeing* that once income¹ starts, it will increase by 3%² each year. This means that once withdrawals begin, the first check is the worst check.

In the example³ below, the contract starts at $100,000 and withdrawals begin at age 70. The Ion income withdrawal rate is 5%. This rate may be lower than some other available retirement products, but because the dollar amount increases annually, an Ion eventually surpasses those higher income rates.

ORBITER® FIXED INDEXED ANNUITIES

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Age	5% annual income	5.5% Income rate ($5,500 annual income)	6% Income rate ($6,000 annual income)
70	$5,000	$5,500	$6,000
71	$5,150	$5,500	$6,000
72	$5,300	$5,500	$6,000
73	$5,450	$5,500	$6,000
74 At age 74, the annual Ion income surpasses the $5,500 annual income.	$5,600	$5,500	$6,000
75	$5,750	$5,500	$6,000
76	$5,900	$5,500	$6,000
77 At age 77, the annual Ion income surpasses the $6,000 annual income.	$6,050	$5,500	$6,000
78	$6,200	$5,500	$6,000
79	$6,350	$5,500	$6,000
80	$6,500	$5,500	$6,000
Years 81-84
85 At age 85, the annual income has an advantage of at least $1,250.	$7,250	$5,500	$6,000

In this scenario, here’s how pronounced the income advantage becomes over a 25 year period.

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5% cumulative income rate	5% cumulative income rate	5.5% cumulative income rate	6% cumulative income rate
$178,750	$125,000 (Cumulative income difference of $53,750)	$137,500 (Cumulative income difference of $41,250)	$150,000 (Cumulative income difference of $28,750)

Contact your financial professional to learn how an GLWB rider could make your first check your worst check.

Annual income rates

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Age	Single life	Joint life
59½-64	4.00%	3.50%
65-69	4.50%	4.00%
70-74	5.00%	4.50%
75-79	5.50%	5.00%
80-84	6.00%	5.50%
85+	6.50%	6.00%

Income rates are based upon the age of the first withdrawal after age 59½. Annuitant’s age is used for the Single Life version, or the youngest Participating Spouse’s age for the Joint Life version. The Rider value is not available as a cash option and is used solely for the purpose of calculating
GLWB payments. It does not provide a Contract Value or guarantee performance of any investment option.

The rider’s annual cost is based upon the age at the time of issue. For the single life version, the annuitant’s age etermines the cost. For the joint life version, the age of the younger spouse determines the cost. The annual cost can increase on any anniversary after the second. The increase can be declined, but doing so may reduce income for future years by up to 1%.

Annual cost

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Age at issue	Annual charge (% of the rider’s value)
50-59	1.15%
60-69	0.95%
70-80	0.75%

Issue Age: 50-80 for Annuitant (Single life); 50-80 for both Participating Spouses (Joint life).

Fixed indexed annuities (“FIA”) are long-term investment vehicles designed to accumulate money on a tax-deferred basis for retirement purposes. Upon retirement, FIAs may provide an income stream or a lump sum. If you die during the accumulation or payout phase, your beneficiary may be eligible to receive any remaining Contract Value.

An FIA is not a registered security or stock market investment and does not allow direct participation in any stock or equity investments, or index. The index used is a price index that tracks market performance and does not reflect dividends paid on the underlying stocks. Indices are typically unmanaged and are not available for direct investment.

FIAs provide the potential for interest to be credited to the annuity, based in part on the performance of the specified index, without the risk of loss of premium due to market downturns or fluctuation because of a contractual floor.

Product, product features and rider availability vary by state. Certain features may vary by agency or broker-dealer. Issuer not licensed to conduct business in New York.

Early withdrawals or surrenders may be subject to surrender charges. Withdrawals are also subject to ordinary income tax and, if taken prior to age 59½, a 10% federal tax penalty may apply. Tax rules require that withdrawals be taken first from any unrealized gain in the contract. Federal and state tax laws applicable to this product are subject to change. You are encouraged to consult your personal tax adviser for further information.

There is no additional tax-deferral benefit for contracts purchased in an IRA or other tax-qualified retirement plans because such retirement plans already have tax-deferred status. An annuity should only be purchased in an IRA or qualified plan if you value some of the other features of the annuity and are willing to incur any additional costs associated with the annuity.

*Guarantees are based upon the claims-paying ability of the AuguStar Life Insurance Company. Guarantees do not apply to the investment performance of any chosen index.

¹ Income means: (1) during the accumulation phase, the amount you withdraw from your annuity in a contract year; (2) during the Lifetime Annuity Period, the amount you receive in annuity payments each year.

² As a percentage of the initial rider value. The amount to which percentages are applied will be adjusted for step-ups or excess withdrawals. No additional increases will be applied to the rider’s value once the contract’s value is reduced to $0 or after the Index Anniversary immediately following the Annuitant’s 95th birthday.

³ This hypothetical example is for illustration purposes only and is not representative of any future performance of any particular product. Hypothetical Illustration may not be used to predict or project investment results.

THIS MATERIAL IS FOR USE WITH THE GENERAL PUBLIC AND IS NOT INTENDED TO PROVIDE INVESTMENT ADVICE FOR ANY INDIVIDUAL.

NOT A DEPOSIT. NOT FDIC INSURED. NOT GUARANTEED BY ANY BANK. NOT INSURED BY ANY GOVERNMENT AGENCY. MAY LOSE VALUE.

Fixed indexed annuity issuer: The AuguStar Life Insurance Company

Form 9295

Three things that keep small business owners up at night

Many small businesses share three common issues that can rob the owner of a good night’s sleep. But a bit of business planning with a financial professional can go a long way to help you regain control of your sleepless nights.

Planning for business continuation

Planning for continuation of ownership in the event of retirement, disability or death is perhaps the fundamental need of any closely held business, especially one that has more than one owner.

Solution: Most small business owners that plan for the transition of ownership use a buy-sell agreement that specifies the terms of buying out the interest of a disabled or deceased owner, usually with disability income insurance or life insurance, which provides a means for financing the buyout.

Protecting the operating team of the business

Every successful business has at least one key employee or contributor who is indispensable. What if that person died unexpectedly?

Solution: Life insurance can be used to protect against the financial costs associated with the loss of a key employee. Key person life insurance helps provide liquidity to sustain cash flow, keep accounts current, and cover the expense of seeking and training a replacement.

Recruiting, retaining, and rewarding key employees

It is tough to attract talented employees. The best people have many choices for employment and can command their desired compensation package.

Solution: Benefits such as an executive bonus plan, split-dollar plan, and supplemental executive retirement plan (SERP) are non-qualified fringe benefits that can be funded with life insurance to reward outstanding, key employees beyond their regular compensation.

There’s no better time to start planning for your small business! Talk with your AuguStar financial professional to get started.