102 supplemental slides

1. INSURANCE/
EMPLOYEE BENEFITS
SLIDES

2. Annuities
AnnuitizationAccumulation
Exclusion RatioLIFO

3. Exclusion Ratio- Fixed Annuities
Exclusion Ratio = Total Basis
Total Expected Payments

4. Exclusion Ratio- Variable Annuities
$ Exclusion = Total Basis
Total Expected # of Payments
(Also can be used for fixed annuities)

5. Universal Life
DB Option A
DB = FA
N.A.R. = FA - CV
Cash Value
(invested in
General Account)
Mortality Deduction
(Annual Renewable Term)
Premiums
Policy Fee
Expenses
DB Option A
DB = FA
N.A.R. = FA - CV
DB Option B
DB = FA + CV
N.A.R. = FA
Flexibility
1) Premiums
2) Death Benefit
3) Withdrawals

6. Variable Universal Life
DB Option A
DB = FA
N.A.R. = FA - CV
Cash Value
Mortality Deduction
(Annual Renewable Term)
Premiums
Policy Fee
Expenses
DB Option A
DB = FA
N.A.R. = FA - CV
DB Option B
DB = FA + CV
N.A.R. = FA
Flexibility
1) Premiums
2) Death Benefit
3) Withdrawals

7. Revenue Ruling 2009-13
"Investment in Contract" = Premiums Paid
- Loans/Withdrawals
- Dividends Rec'd in Cash
"Basis in Contract" = Premiums Paid
- Loans/Withdrawals
- Dividends Rec'd in Cash
- Cost of Insurance

8. Life Policy- Gain at Surrender
"Investment in Contract" = Premiums Paid
- Loans/Withdrawals
- Dividends Rec'd in Cash
Gain at Surrender = CSV - "Investment in Contract"
(Taxed as O.I.)

9. Life Policy- Gain at Sale
"Basis in Contract" = Premiums Paid
- Loans/Withdrawals
- Dividends Rec'd in Cash
- Cost of Insurance
Gain at Sale = Amt. Realized - "Basis in Contract"
(Taxed as O.I. & CG)

10. Major Medical Chart
Policy
Provisions
$$$
Allocated
Insured
Pays
Insurance
Company
Pays
Dedt $500 $500 $500 -------
Coinsurance
80/20 with
$5,000
coinsurance
limit
$5,000 $1,000 $4,000
100%
Insurer pays
100%
Remainder ------- 100%

11. Major Medical Example
Policy
Provisions
$$$
Allocated
Insured
Pays
Insurance
Company
Pays
Dedt
$250 per
person
(limit of 3)
$750 $750 -------
Coinsurance
80/20 ($5,000
coinsurance)-
everyone
$20,000 $4,000 $16,000
100%
Insurer pays
100%
Remainder ------- $9,250

12. Form 1040
All Income (from whatever source derived)
- Exclusions
Gross Income
- Deductions ("Above the Line")
AGI
- Greater of:
Standard Deduction
Itemized Deductions
Regular Taxable Income*
* Regular Taxable Income is the starting point for calculating
AMTI

13. Medicare Part A- Hospital
• Insured pays (2018):
• Days 0-60: $1,340 deductible/benefit period
• New benefit period begins after patient is
out of hospital for 60 days
• Days 61-90: $335/day
• Days 91-150: $670/day if lifetime reserve
day used- otherwise, all cost
• 60 lifetime reserve days provided

14. Medicare Part A- Skilled Nursing
Facility Care
• Insured pays (2018):
• Days 0-20: $0
• Days 21-100: $167.50/day
• Days 101+: All cost

15. Medicare Part D- Prescription Drug
• Insured pays (2018):
• $405 deductible
• 25% coinsurance until insured/insurer have paid
$3,750 OOP including deductible
• Until another $1,250 OOP reached:
• 35%* (brand-name)
• 44%** (generic)
• Greater of:
• 5% or $3.35 (preferred or generic)
• 5% or $8.35 (other)
*15% discount from manufacturer, 50% from manufacturer
(85% of total drug cost counts toward OOP amount)
**Only your cost counts toward OOP amount

16. Medigap
A B C D F G K L M N
Basic Benefits X X X X X X X X X X
Part A Deductible X X X X X 50% 75% 50% X
Skilled Nursing X X X X 50% 75% X X
Part B Deductible X X X
Part B Excess X X
Foreign Travel X X X X X X

17. SIS Rider Example
$4,000 Base Benefit
$1,000 Social Insurance Substitute Rider
90-Day Elimination Period
Social Security pays $800 after 5 months
Months
DI Base
Benefit
Pmt
Soc Sec
Pmt
SIS Rider
Pmt
1-3 $0 $0 $0
4-5 $4,000 $0 $1,000
6+ $4,000 $800 $200

18. HO Coinsurance Formula
Ins. Amount * Loss - Deductible
80% of RC

19. NQSOs
Grant No Tax
Exercise
Bargain Element (FMV-EP)
is W-2 Income
(subject to FICA)
Sale
(Amt. Realized - Basis) is
Capital Gain
(Basis is FMV @ purchase)

20. ISOs
Grant No Tax
Exercise
Form 1040
No Tax
AMT
Bargain element
is AMTI
(Positive adjustment)
Sale
Form 1040
HPR met: All LTCG
HPR not met:
Bargain element is W-2
Inc. (no FICA); other gain
is CG (L/T or S/T)
AMT
Reg. taxable income
carries over, then
negative adjustment

21. ISO Negative Adjustment
ER grants EE an ISO with exercise price of $25.
EE exercises 2 years later when the stock has FMV of $35.
EE sells stock 2 years after exercise when stock has FMV
of $50.
HPR are met.
Grant $0 Income $0 AMTI
Exercise $0 Income
$10 AMTI
(Pos. Adj.)
Sale
$25 Income
(LTCG)
$25
($10 AMTI Neg. Adj.)
$15 AMTI
1040 AMT

22. AMT
All Income Regular Taxable Inc.
- Exclusions
Gross Income
- Deductions ("Above the Line")
AGI
- Greater of:
Standard Deduction
Itemized Deductions
Regular Taxable Income AMT Income
+
+
+

23. Cashless Exercise
Bargain Element x Tax Rate x # SharesExercise Price x # Shares +
FMV at Exercise
Income TaxCost of Exercising

24. ESPP Taxation
Grant No Tax
Exercise No Tax
Sale
HPR Met:
W-2 income (LESSER of):
FMV @ grant - option price
Sale price - option price
Capital gain for remainder
HPR NOT Met:
W-2 income:
FMV @ purchase - option price
Capital gain for remainder

25. ESPP Example (Qualifying Disposition)
Assume 6-mo. offering period
Option price will be 85% of lesser of:
FMV on 1st or last day of offering period
FMV of stock on 1st day of offering period: $100
FMV of stock on last day of offering Period: $110
Option price = .85 * 100 = $85
FMV of stock @ purchase (last day of offering period): $110
Stock is sold 2 years after purchase for $130 (HPR met)
Grant date → No tax
Exercise date → No tax
Sale date → Total gain = $130 - $85 = $45
W-2 income is LESSER of:
FMV @ grant – option price OR Sale price – option price
($100 - $85) = $15 OR ($130 - $85) = $45
Tax consequence is:
$15 W-2 income
$30 LTCG

26. ESPP Example (Disqualifying Disposition)
Assume 6-mo. offering period
Option price will be 85% of lesser of:
FMV on 1st or last day of offering period
FMV of stock on 1st day of offering period: $100
FMV of stock on last day of offering Period: $110
Option price = .85 * 100 = $85
FMV of stock @ purchase (last day of offering period): $110
Stock is sold 15 months after purchase for $130 (HPR not met)
Grant date → No tax
Exercise date → No tax
Sale date → Total gain = $130 - $85 = $45
W-2 income:
FMV @ purchase – option price
$110 - $85 = $25
Tax consequence is:
$25 W-2 income
$20 LTCG

27. Phantom Stock vs. Stock Appreciation Rights
Phantom Stock Stock Appreciation
Rights
Value given to EE
Full value of shares or
Appreciation
Appreciation
Payment made in ... Cash (OI)
Cash (OI) or Shares
(OI @ distribution &
CG for further
appreciation)
Timing of payments
Determined by plan
(EE has no control)
EE determines

28. NQDC PLANS
FUNDED UNFUNDED
(No Substantial Risk (Substantial Risk
of Forfeiture) of Forfeiture)
Secular Trust Promise to Pay
Surety Bond (ER buys) Rabbi Trust