FIXED INDEXED ANNUITIES TALKING POINTSMonthly Point-to-Point with Cap TALKING POINTS – Page 12...

Understanding and Benefiting from

FIXED INDEXED ANNUITIESTALKING POINTS

Some advantages to the Fixed Indexed Annuity:

Safety of your principal Interest is typically locked-in each term

No risk of loss if you hold the contract to term and no withdrawals are taken during the withdrawal charge period

A guaranteed minimum contract value

Your choice of interest crediting strategies: index-linked or a guaranteed interest option

Tax deferred growth (Annuities vs. CDs, for example)

Penalty-free and lifetime income options

What Do Fixed Indexed Annuities Offer?

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Guarantees provided by annuities are subject to the financial strength of the issuing insurance company; not guaranteed by any bank or the FDIC. Annuities are long-term products of the insurance industry designed for retirement income. They contain some limitations, including possible withdrawal charges and a market value adjustment that could affect contract values. The Internal Revenue Code already provides tax deferral to IRAs, so there is no additional tax benefit obtained by funding an IRA with an annuity; consider the other benefits provided by an annuity, such as lifetime income and a death benefit.

Many fixed indexed annuities have multiple interest-crediting strategies; you may select a strategy in advance for each interest crediting period (a term is typically one year)

Track a market index

Determine a percentage change based on the selected strategy

An adjustment such as a participation rate, cap rate or fee may apply

Credit interest at the end of the period (usually each contract year) – In annual reset annuities, credited interest can never be taken away due to direct market fluctuation or market performance

Any interest compounds in the next crediting period

How Do You Earn Interest?

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Fixed indexed annuities are not stock market investments and do not directly participate in any stock or equity investments. Market indexes do not include dividends paid on the underlying stocks, and therefore do not reflect the total return of the underlying stocks; neither an Index nor any market-indexed annuity is comparable to a direct investment in the equity markets. Clients who purchase indexed annuities are not directly investing in a stock market index. Positive index adjustments may be limited to a monthly maximum (called a “cap”) or a participation rate, meaning only a portion of the gain is credited to the contract.

A downturn in the market index does not result in a reduction in your account/premium

Caps, fees and participation rates can never cause the annuity to receive a negative interest credit

Get up to a 10% withdrawal without surrender charges

There are death benefit advantages as well as several tax-favored income strategies

Other Important Benefits

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Taxable amounts withdrawn prior to age 59½ may be subject to a 10% IRS Penalty. Withdrawals in excess of the 10% fee amount may be subject to withdrawal charges and a market value adjustment that would reduce the value of your annuity. In addition, withdrawals are not credited with index interest for that term.

CDs, Mutual Funds, Bonds, etc. ; each have risk/reward profiles and trade-offs

CDs have a lot of safety guaranteed, but often lower interest

Mutual funds have the POTENTIAL for a high return, but carry some risk for negative returns

A fixed annuity has less risk to value than VAs, stocks and bonds but more potential interest credits than CDs

Don’t expect interest to rival stocks over the long term and don’t expect the F.D.I.C. insurance of CDs, however, you will never lose principal (if held to term), and the annuity is backed by the strength of the issuing insurance company

Most fixed indexed annuities guarantee that the interest rate credited will never be less than zero

Choose the Risk/Reward Profile of Your Money (Chart)

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Fixed indexed annuities are not stock market investments and do not directly participate in any stock or equity investments. Market indexes do not include dividends paid on the underlying stocks, and therefore do not reflect the total return of the underlying stocks; neither an Index nor any market-indexed annuity is comparable to a direct investment in the equity markets. Clients who purchase indexed annuities are not directly investing in a stock market index. Annuities are products of the insurance industry; not guaranteed by any bank or the FDIC.

$100,000 invested in a security mimicking the S&P 500® Index, (without dividends), versus purchase of a $100,000 fixed annuity Two strategies within fixed indexed annuities might be an annual point-to-point and a fixed rate

Money invested in a security which tracks a stock market index – When the stock market goes down 25%, you lose $25,000

Even though the index had a negative return, money in the index-linked interest crediting strategy would have credited 0% interest causing no loss of principal

You would have been credited 3.5% on money in the Fixed Interest Strategy in a Fixed Indexed Annuity even though the market had dropped

Protection from Risk (Chart)

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To recover the $25,000 you lost in the market, you need three years of high, positive interest growth

Why? Because in a fixed indexed annuity, market index losses do not translate into negative interest

To come back by the end of year 2 (1 year recovery), the market would need a gain of nearly 43% (without dividends)

To come back by the end of year 3 (2 year recovery), the market would need two 21% gains

To come back by the end of year 4 (3 year recovery), you would need to see three consecutive annual gains of over 15%

Recovering from Market Loss (Chart)

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Point-to-point strategy compares the starting index value with the ending index value

Interest credits are added only at the end of each term (typically 1-year) and are locked-in at that time so there’s no risk of losing your prior interest credits

The interest credit could be 0% if the Index posted a negative performance for that term

Interest credit is limited (or applied) to be no higher than the cap rate declared by the company in advance of the crediting period

Types of Indexed Strategies: Point-to-Point with Cap

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Caps are declared by the issuing company at the beginning of each term period and are subject to change. Current example uses a 6% cap. Actual cap may be higher or lower.

A hypothetical example

Interest credit period started on a day when the market index finished at 1,050 and a year later it ended at 1,124 – index increase is 73.5, and the % increase is 7%

Since the cap is 6%, the credit is 6%

At the beginning of year two, the beginning index value is 1,124

The beginning Index value is always reset each term and the cap rate is set and guaranteed at the beginning of each term period

Even if the index goes down from 1,124 during the next term, the interest credits will never be less than 0% and your interest credited for the previous terms can never be lost due to market downturns

How the Interest is Calculated – Point-to-Point (Bar Chart)

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Monthly average strategy compares the starting index value with the average of the following 12 month’s (same day) index values

Interest credits are added only at the end of each term (typically 1-year) and are locked-in at that time so there’s no risk of losing prior interest credits

The interest credit could be 0% if the index posted a negative performance for that term

Percentage increase is limited by the cap

Interest credit will never be less than 0%

Monthly Averaging with Cap

TALKING POINTS –

Caps are declared by the issuing company at the beginning of each term period and are subject to change. Current example uses a 7% cap. Actual cap may be higher or lower.


Interest crediting period started on a day when the market index finished at 1,100

The sum of the index values at the end of the next 12 months is 14,784 – the average is 1,232

The index value increase is 132

This is a 12% increase over 1,100

If the cap is 7%, interest credit is 7%

How the Interest is Calculated – Monthly Average (Bar Chart)

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Caps, fees, participation rates and spreads are declared by the issuing company at the beginning of each term period and are subject to change. Current example uses a 7% cap. Actual rates may be higher or lower.

Monthly point-to-point with cap strategy compares the starting index value with the ending index value for each of the 12 monthly periods of the policy year to produce 12 monthly percentage changes

Each of these increases is capped to a maximum percentage, then they are added together

Interest credits are added only at the end of each term (typically 1-year) and are locked-in at that time so there’s no risk of losing your prior interest credits

The interest credit will never be less than 0% even if the percentage increase is negative for that term

Monthly Point-to-Point with Cap

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Interest credit period started on a day when market index finished at 1,061

Determine the percentage increase for each month

In any month where the change percentage is greater than the cap (2.00%), the change percentage is limited to the cap; this happens in the 1st & 12th months – the 4.80% and 4.20% increases are each reduced to 2.00%

The sum of the 12 monthly percentages is 5.80%

How the Interest is Calculated – Monthly Point-to-Point (Bar Chart)

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Typically you can have a maximum 10% annual withdrawal without a penalty after the first year

There is daily interest paid to your account without charges with the fixed interest option

You can annuitize and get guaranteed income payments

You can have a withdrawal amount guaranteed for your lifetime

Your beneficiaries can elect guaranteed income options as well

How Can Your Fixed Indexed Annuity Provide You With Income?

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Withdrawals are not credited with index interest for the term in which the withdrawal was taken. Withdrawals in excess of the free amount are subject to withdrawal charges and may also be subject to a market value adjustment. Any RMD is considered part of the free withdrawal for that year. Guaranteed lifetime income available through annuitization or the purchase of an optional lifetime income rider, a benefit for which an annual premium is charged. Guarantees provided by annuities are subject to the financial strength of the issuing insurance company; not guaranteed by any bank or the FDIC.

Do you have long-term objectives for wealth accumulation?

Is this intended for income now or later?

Is the annuity going to be used for unexpected events/emergencies or a beneficiary?

Do you want your premium to be safe?

Are you interested in higher returns without market risk to your accumulated value?

Do you have other available funds for emergencies?

How Do You Know if a Fixed Indexed Annuity is Right For You?

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Fixed indexed annuities are not stock market investments and do not directly participate in any stock or equity investments. Market indexes do not include dividends paid on the underlying stocks, and therefore do not reflect the total return of the underlying stocks; neither an Index nor any market-indexed annuity is comparable to a direct investment in the equity markets. Clients who purchase indexed annuities are not directly investing in a stock market index. Guarantees provided by annuities are subject to the financial strength of the issuing insurance company; not guaranteed by any bank or the FDIC.

Here are some of the Questions You Should Ask Your Agent or Advisor

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What is the guaranteed minimum contract value?

What is the range of possible interest rates for my contract?

What charges, if any, are deducted from my premium?

How long is the term?

How is interest credited during the term?

What is the participation rate, and how long is it guaranteed?

Is there a margin, spread or administrative fee? Is that in addition to, or instead of, a participation rate?

What annuity income payment options do I have?

Can I get a partial withdrawal without paying charges or losing interest? Does my contract have vesting?

What are the surrender charges or penalties if I want to end my contract early and take out all of my money?

Does my annuity waive withdrawal charges if I am confined to a qualified care facility or diagnosed with a terminal illness?

Is my annuity “required minimum distribution” friendly?

What is the death benefit?

About Crediting and Terms About Withdrawals

All product features, charges and rates described in the presentation, Understanding and Benefiting from Fixed Indexed Annuities, are not product or company specific. Please contact your agent or company representative to request information to a particular annuity.

This material has been prepared for informational and educational purposes only. It is not intended to provide, and should not be relied upon for, accounting, legal or tax advice. 12967 - 2013/8/21

Important Information about a Fixed Indexed Annuity

A Fixed Indexed Annuity is a fixed annuity. It is a long-term savings vehicle offering fixed and indexed interest-crediting options. All contract guarantees are backed by the claims-paying ability of issuing insurance company. Indexed interest crediting links the amount of interest credited to the annuity to the performance of a specific market index – for example, the Standard & Poors 500 Stock Index (S&P 500).1 Since a fixed indexed annuity is not a registered security and does not participate directly in the stock market or any index; it is not an investment.1 “Standard & Poor ’s®”, “S&P®”, “S&P500®”, “Standard & Poor ’s 500” and “500” are trademarks of The McGraw-Hill Companies, Inc. and have been licensed for use by American Investors Life Insurance Company, Inc. The Performance Edge annuity is not sponsored, endorsed, sold or promoted by Standard & Poor ’s and Standard & Poor ’s makes no representation regarding the advisability of purchasing the Product.

A Long-term and/or Retirement Savings Vehicle

A Fixed Indexed Annuity is intended for retirement and other long-term financial needs. It is designed for individuals who have enough cash or other liquid assets to cover living expenses and unexpected emergencies. A Fixed Indexed Annuity allows you to save and accumulate your assets on a tax-deferred basis. Your annuity is protected from any direct downside risk associated with the underlying index. Therefore, a negative index return can never result in interest credits for any index term period that are less than zero.

Charges for Early Withdrawal Excess withdrawals during the surrender charge period are subject to a surrender charge--a percentage of the annuity’s accumulation value. Due to surrender charges, you may receive less than your premium payment if you surrender the policy in the early years before surrender charges expire. Penalty-Free Withdrawal Information Almost all annuities allow some portion of the accumulation value to be withdrawn annually without surrender charge, for example 10%. All withdrawals are subject to income taxes to the extent of interest earned. If withdrawals are made before age 59½, a 10% federal penalty tax may apply. The purchase of an annuity to fund a tax-qualified retirement plan account does not provide additional tax deferral benefits beyond that provided by the plan itself.

Important Information About a Fixed Indexed Annuity

FIXED INDEXED ANNUITIES TALKING POINTSMonthly Point-to-Point with Cap TALKING POINTS – Page 12...

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