Ml ilipp+indexed ul_and_ruleof100xx

Copyright 2013, 2015 - All Rights Reserved
Index UL &
the Rule of 100
Volatility Control Plus
Tax Free Compounding
Sponsored by MarketLinking.com
Published by Capital Strategies Press

Bonds are Not the Only Source of Stability
• Company A – 8.1%
• Company B – 7.9%
• Company C – 8.3%
• Company D – 8.0%
• Company E – 8.2%
• Company F – 8.1%
The above returns are from Indexed Universal Life Insurance Policies. The indexing
account uses excess bond interest to hedge a specified stock market index. When
the stock index increases, the earnings are credited to the indexing account in
addition to the base policy guarantees. When the stock market declines, only the
minimum interest rate is credited and there is no market loss to the portfolio (only the
failure to earn additional interest).
Indexing is a way to participate in stock market gains, without the risk of stock market
losses. In an indexed account the saver is completely protected from market losses,
but does participate in a portion of the market growth. Indexed savers are essentially
trading some of the top of the market gains, in exchange for total protection from all
market losses.
If indexing policies can provide yields in excess of bonds, plus complete protection
from market crashes, why not use it as an alternative in our Rule of 100 planning?

Dividends are not included in the S&P500 calculations, the collection of
which would reduce the markets volatility and increase its return.
The graph below shows the performance of an indexed account versus the S&P500
Stock Index covering the period from Jan 1970 to Nov 2011. The indexed account
avoids all market losses, but gives up some of the higher market returns. The net
result is a more stable return, with no market risk.

Balancing with Bonds versus Indexed Policies
Age
% in Stocks
/ Other
Portfolio Yield
(Stocks 10% / Bonds 6%)
Portfolio Yield
(Stocks 10% / Indexed UL 7%)
30 70% 8.82% 9.10%
35 65% 8.62% 8.95%
40 60% 8.42% 8.80%
45 55% 8.22% 8.65%
50 50% 8.03% 8.50%
55 45% 7.83% 8.35%
60 40% 7.63% 8.20%
The indexed policy not only provides a higher balanced portfolio yield, it offers better protection against
portfolio volatility. In the balanced stock/bond mix, both the bond and stock portions could incur market
losses. In the stock/indexed combination, only the stock portion has market risk. In addition, interest on
the indexed UL cash values grow tax free and the policy death benefit elements can be used to
guarantee retirement plan completion or other family protection functions.

Life insurance policies are granted a number of special tax provisions and these advantages
extend to universal life policies. Interest earnings on cash value are credited tax free, but these
earnings are diluted by annual mortality costs. In a universal life policy, the mortality rates increase
annually and are essentially identical to an internal annual renewable term policy.
Example: Earnings on $100,000 cash value at 8% = $800, less $123 for mortality = $677 net
revenue, which is 6.77% on the $100,000 cash account.
Therefore, in order to get the full yield that is earned by the indexing account inside the universal life
policy, the annual cost of mortality must be added to the annual premiums. This will offset the
mortality charge and allow the policy cash value to compound tax free at the full return earned
during any given year.
Since the mortality expense is based on the net risk of the policy (death benefit minus cash value)
the mortality expense can be minimized by contributing enough cash to keep the net risk just below
the level required to retain the policy tax advantages. The higher the cash value, the lower the
mortality cost.
As the age of the insured increases, the required death benefit per cash value is
reduced. This effect is especially pronounced at older ages when the annual mortality
rates increase rapidly.
The Little Matter of Mortality Costs

Principal at Risk
At age 60 (five to seven years before normal retirement) the Rule of 100 has
the portfolio at 40% stocks. A major stock market decline will wipe out 12%
to 18% of your assets on the eve of retirement. An event that would require
substantial adjustments to your lifestyle.
Even with only 20% of your assets in stocks, there is still a chance of loosing
a big chunk of wealth. Professional financial planning dictates that we
explore all risk/return alternatives and whenever possible, select the ones
that provide the best protection for our principal.
The rule of 100 and 110 and balanced portfolios and the
more sophisticated techniques of portfolio selection are
all approaches to manage risk and minimize uncertainty.
However, none of them will protect against the
potential loss of principal.

Target Returns
Assume that I am age 45, have $10,000 in my fledgling retirement fund and are saving $2,400 a year. I
have been advised that at age 67, I will need a personal retirement nest egg of $250,000 to meet my
lifestyle goals. Therefore I need to compound my retirement account at an average of 9.51% a year. It
does not matter that the rule of 100 dictates that I should earn 8.22% in a portfolio consisting of 55%
common stocks and 45% bonds. At an 8.22% annual return, I would need to save $3,132 a year. That
does not seem like much of a stretch, but it will cost one of my kids their college education.
The numbers are the numbers. I have three choices: Save more! Retire on less! Or increase the
percentage of my portfolio in the stock market, which, of course, increases my risk of loss.
Retirement planning is not a shoot from the hip endeavor. It requires careful planning and precise
calculation. A situation that is further complicated by the nature of market returns, because they fluctuate
widely for any given year and are only predictable over a span of years. However, all retirement planning
should be Target Planning. Annual contributions and rate of return targets should be based on a careful
analysis of your financial needs and where with all and a projection of the effects of compounding
interest on your retirement assets.
The Rule of 100 is a general principal, a rough guide created to manage risk. It does
not take into account the target return needed to accomplish a financial goal. It just
blindly allocates money between stocks and bonds and hopes for the best. However,
professional retirement planning requires a goal!

The Golden Rule of
Risk Management
This is the Prime Dictate of financial planning. Assume, for example that you
calculate that you need an 8% return to meet your long term retirement goals.
Portfolio A: Expected Return 8.5%; Chance of loss 30%
Portfolio B: Expected Return 8.0%; Chance of loss zero
All you require to meet your needs is 8% and based on historical performance, both portfolios
A and B can accomplish the required return. Why would anyone needlessly place their assets
at risk, when a risk-free alternative was at hand. If both portfolios A and B, have an expected
return of at least 8%, it would be foolish to accept higher risk for the a return you don’t
need.
Make this rule part of your financial psyche
– It will minimize any future losses!
“Never Accept More Risk than Absolutely
Necessary to Get Your Target Return”

Copyright 2015 - All Rights Reserved
Cross-Over Point
Indexed accounts offer a risk free alternative with historical returns in the high 7% to low 8% range.
Therefore - The Golden Rule of Risk Management dictates the following:
For target returns from 7% to 10%, a balanced portfolio of stocks and market linked
accounts offers the needed return at the lowest risk
For target returns of less than 7%, an index life account offers the same
historical yield as a balanced portfolio, without any stock market risk.
We have seen that the long term return in the stock market is around 10%
and chasing that return can expose your assets to substantial market risk.
This risk and return has been confirmed by numerous studies by
independent investigators. On the other hand, the long term average of
high quality commercial bonds is around 6%. To target returns in between,
it is common to run mixed portfolios that lower the risk as well as the return.

Indexed Life Insurance Private Pension (ILLIP)
• Yields competitive with balance portfolios & Complete protection from market losses
• Tax free interest compounding & Tax free distributions at retirement
• Time diversification (automatically averages fluctuations in annual yield)
• Optional plan completion if disabled & Built-in chronic and critical illness protection
• Built-in retirement plan completion for spouse in event of death
• Tax free wealth transfer options to next generation
• Unlike other personal retirement plans, the annual interest from an ILIPP will not push your
income taxes into higher and higher brackets while you accumulate your retirement nest
egg (see our white paper on the Isolation Principal)
• Unlike other retirement income options, ILIPP retirement distributions will not trigger taxes
on your social security at retirement
• Use an ILIPP to offset the effects of inflation on static dollar retirement income sources
• Use an ILIPP to offset taxes on qualified plan retirement distributions
• Use an ILIPP as a guarantor of spousal retirement income, thereby allowing you to elect
higher single life payouts from other retirement sources
No other Retirement Tool is as Flexible or as Tax Friendly as an ILIPP
Using an Indexed Life Insurance Policy

Let's See How an ILIPP Can Energize Your
Retirement Planning
Do you have a retirement plan?
What are you retirement assets?
How much do you save each month for retirement?
What are your retirement goals?
For additional information on this financial
concept please visit MarketLinking.com
**Life insurance policies are purchased through licensed insurance agents. The purchaser must receive a NAIC
compliant illustration on any and all policies considered. Not all agents are familiar with this concept. For best
results choose your insurance agent wisely. - Please see the important notices on the following pages.

Links to Impartial Providers of
Historical Asset Class Performance
Federal Reserve Board posts returns from a variety of fixed income asset classes, some of which extend as far
back as the early 1900’s. Please visit: http://www.federalreserve.gov/releases/h15/data.htm
Ibbotson, owned by Morningstar, compiles an extensive list of asset returns and focuses on stock market
based asset returns. http://corporate.morningstar.com/ib/asp/subject.aspx?xmlfile=1414.xml
Capital Strategies Press publishes an annual summary of indexed performance. Their numbers are
independent of the projections made by the insurance carriers. http://CapitalStrategiesPress.com
Yahoo financial database: http://finance.yahoo.com/market-overview/
MarketLinking.com offers a public access database on a variety of market linked and indexed returns.
Visit http://MarketLinking.com

Important Notes and Disclaimers (Please Read)
The performance comparisons used in this presentation make assumptions about future rates of
return. These assumptions may or may not be valid. No one knows the future. Our only guide is the
past and the future returns from various asset classes may not reflect their historical averages or
ranges. The comparisons used herein are solely for the illustrative purposed.
Knowledge is power and when making financial decision knowledge is essential. Every consumer,
whether making investment, savings or insurance decisions should carefully study the past
performance of every asset class under consideration in order to make an informed decision about
their expectations of the future performance of that asset class. There are a number of independent
third party sources of asset returns. All consumers should consult one or more of these sources or
other impartial third parties that maintain similar databases and/or analysis.
Meaningful financial planning requires unbiased information. Financial decisions about retirement
funding, future retirement income, building a family nest egg, and purchasing insurance to provide
financial protection for life’s unexpected events all require making assumptions about future
performance. Unless these assumptions are based on expectations that have a reasonable
probability of being close to future results, you are not planning, you are guessing.
Please discuss asset class returns with a competent financial professional before making a final
decision about how to allocate your financial resources. This should be more than a cursory
discussion. If the financial professional you have chosen to trust seems uniformed in any way on the
subject of asset class performances, you should seriously consider replacing them and finding a
more knowledgeable professional.
Please, please, please take the time to build your personal knowledge of the various financial
products and the performance and liquidity characteristics of the asset classes available to you.

Important Notes and Disclaimers (continued)
The National Association of Insurance Commissioners (NAIC) has formulated guidelines for illustrations that
must be presented to each potential purchaser of cash value life insurance. These multi-page illustrations are
carrier, product and insured specific and contain substantial disclaimers, warnings and clarifications. The
summary presented herein is taken from one set of annual yield assumptions and premium inputs. Alternate
assumptions can produce radically different policy performance, including early lapse of the policy. The age
and health status of the insured is likewise a key assumption that when changed, can lead to policy
performance much less favorable to the policy owner.
These types of life insurance policies can only be purchased through the services of a life insurance
agent licensed in your state of residence. If you are interested in learning more about the retirement cash flow
features of cash value life insurance, please confer with a licensed agent and have her/him prepare NAIC
compliant illustrations using reasonable assumptions. We strongly advise that consumers never rely on the
carrier’s highest historical return. A lower return assumption will make the outcome more likely.
We also strongly advise that the interest rate spread assumed on any variable loan be reasonable in light of
historical performance data. The spread is the difference between the assumed policy crediting rate and the
rate charged on policy loans. Example: the policy yields an annual return of 8.3% and a loan charge of 5.5%,
then the spread is 2.8%.
A 2.8% spread is unreasonable and will create an internal compounding during the loan period that will inflate
the available retirement funds substantially. Since a 2.8% spread has never been sustained during any past
economic period, the results illustrated will be an illusion and will never occur. The variable loan rate of an
indexed policy is tied to the commercial bond rate. Universal life insurance carriers invest policy cash values
funds in the commercial bond market. If the insurance carrier charges the policy holder less than its bond
earnings, the carrier will lose money. A history of commercial bond rates are published by the Federal Reserve
and can be found on the Internet
The spread is a critical element of all indexed universal life illustrations that employ the universal loan. If your
agent glosses over the importance of the spread or seems fuzzy on its criticality, get a new agent, because you
are not working with a true professional.

Ml ilipp+indexed ul_and_ruleof100xx

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