Generic, mythbusting description of how equity indexed annuities really work.

1. Understanding Annuities
Annuities can be complex if not understood. Like every product, however, they
have both pros and cons that need to be discussed. We’ll help review them
together in an easy to understand manner.

2. Annuities Have Two Components
When you purchase many kinds of Fixed Index Annuities you get two components that simultaneously work
together. The Index or Cash Value is the accumulation value of your annuity. This value is based on the interest
that is credited to your annuity based on the rise and fall of the market. The second component is a book-
keeping component that grows each year at a guaranteed rate of interest and may be turned into a lifetime
stream of income at some future date. Let’s see how each of these components work:
Index Value Personal Pension
or or
Cash Accumulation Lifetime Income
Value Value

3. Index Value or
Cash Accumulation Value Component

4. 1. The Bonus and Annual Lock In
Many Fixed Index Annuities provide bonuses. Suppose you get a 10% bonus and deposit $100,000
in your annuity. The value of your annuity will then be $110,000 and it will be locked in at that level.
As your annuity rises in value, each new higher value is locked in each year at the anniversary date.
Once locked in that amount is guaranteed and cannot decrease in value.
Your value is locked in
immediately upon
premium payment and
credit of bonus.
$110,000
10% Bonus
$100,000
All guarantees are based
on the claims paying ability
of the insurance company
Participation rates will vary.
A 10% federal tax penalty
may apply to withdrawals
1 2 3 4 5 6
taken prior to age 59 ½. Hypothetical example for illustration purposes only. Each product works differently. See product specific brochures and disclosures for more information.

5. 2. Choosing the Guaranteed Interest
Rate Option
The insurance carrier will offer you a fixed, guaranteed interest rate in the first year and every year
thereafter which you may choose to take. In this example, suppose the guaranteed interest rate is
3.5%. Even if the market declines, you will earn 3.5%. If you include the bonus of 10% in calculating
the first year interest rate of your annuity, that would be a guaranteed first year return of 13.5%.
By taking the guaranteed interest rate for the
first year, the total guaranteed first year
return including the 10% bonus is 13.5%
$110,000
10% Bonus
$100,000
All guarantees are based
on the claims paying ability
of the insurance company
Participation rates will vary.
A 10% federal tax penalty
may apply to withdrawals
1 2 3 4 5 6
taken prior to age 59 ½. Hypothetical example for illustration purposes only. Each product works differently. See product specific brochures and disclosures for more information.

6. 3. Choosing to Link Your Money to
a Market Index, Like the S&P 500
It is important to remember that your monies are not invested in the S&P 500 but linked through a formula called a
Crediting Formula. It is this formula that will determine the interest credited to your annuity when the market index
increases in value. In most cases there will be a cap or limit and the interest credited to your annuity may not be as
much as the market gain. Many people feel that the protection against losing money is a good tradeoff for possibly not
getting an equivalent of the index gains.
S&P 500 Monies linked to the index will increase in
value when the market increases in value.
Crediting
Formula
$110,000
10% Bonus
$100,000
All guarantees are based
on the claims paying ability
of the insurance company
Participation rates will vary.
A 10% federal tax penalty
may apply to withdrawals
1 2 3 4 5 6
taken prior to age 59 ½. Hypothetical example for illustration purposes only. Each product works differently. See product specific brochures and disclosures for more information.

7. 4. If the Market Declines the Value
of Your Annuity Cannot Go Down
Because your monies are not invested in the market, a decline in the value of the index to which it is
linked will not effect the contract value. In a declining market you will not be credited any interest but
you will have the peace of mind of knowing that you will not lose any money.
There are no losses due to market declines.
S&P 500
Crediting
Formula
$110,000
10% Bonus
$100,000
All guarantees are based
on the claims paying ability
of the insurance company
Participation rates will vary.
A 10% federal tax penalty
may apply to withdrawals
1 2 3 4 5 6
taken prior to age 59 ½. Hypothetical example for illustration purposes only. Each product works differently. See product specific brochures and disclosures for more information.

8. 5. Automatically Lock In Your
Account Gains Each Year
In a Fixed Index Annuity, interest earned can never be lost due to any decline of the stock market and
the corresponding index to which your annuity is linked. Each new, higher value of your annuity
establishes a new high watermark which is locked in on your anniversary date.
New High Watermark Locked
In Value
S&P 500
Crediting
Formula
$110,000
10% Bonus
$100,000
All guarantees are based
on the claims paying ability
of the insurance company
Participation rates will vary.
A 10% federal tax penalty
may apply to withdrawals
1 2 3 4 5 6
taken prior to age 59 ½. Hypothetical example for illustration purposes only. Each product works differently. See product specific brochures and disclosures for more information.

9. 6. Your Annuity Will Work This Way
For the Life of the Contract
As the market and Index continue to rise and fall, your annuity will be credited with interest with each rise
in the market, establishing a new high watermark locked in value at each anniversary date. When the
market declines there will be no loss of value whatsoever.
New High Watermark Locked
In Value
S&P 500
Crediting
Formula
$110,000
10% Bonus
$100,000
All guarantees are based
on the claims paying ability
of the insurance company
Participation rates will vary.
A 10% federal tax penalty
may apply to withdrawals
1 2 3 4 5 6
taken prior to age 59 ½. Hypothetical example for illustration purposes only. Each product works differently. See product specific brochures and disclosures for more information.

10. 7. Downside Protection and Peace
of Mind Linked to Upside Growth
In this simple illustration the person who is invested in the market lived through a roller coaster of
ups and downs and finally broke even. On the other hand, the person in the Fixed Index Annuity
was free from stress of trying to figure out the market, what to buy, and when to buy it, and Positive
sustains a positive contract value increase which can never be lost in the future. Gain
S&P 500
Crediting
Formula
$110,000 Break
Even
10% Bonus
$100,000
All guarantees are based
on the claims paying ability
of the insurance company
Participation rates will vary.
A 10% federal tax penalty
may apply to withdrawals
1 2 3 4 5 6
taken prior to age 59 ½. Hypothetical example for illustration purposes only. Each product works differently. See product specific brochures and disclosures for more information.

11. Component Summary
Index Value or Personal Pension or
Cash Accumulation Value Lifetime Income Value
Market Down = No Losses
Market Up = Market Linked
Interest Increase
Potential Principal Bonus
Lock in Account Value Yearly
Fixed Interest Alternative
10% Penalty Free Withdrawals*
Potential Surrender Charges
Terminal Illness/Nursing Home Rider**
Lawsuit Protection (Check Your State)
No Yearly Administrative Fees
*A 10% federal tax penalty may apply to withdrawals taken prior to age 59 ½. **May vary by product and state

12. Personal Pension or
Lifetime Income Value Component

13. 8. Many Annuities Have a
“Personal Pension” Alternative
This is called a Lifetime Income Rider (LIR). The LIR utilizes a bookkeeping 8%
account that grows your monies at a specified guaranteed interest rate each
year which then may be converted into a lifetime of guaranteed income. In 8%
this example the guaranteed income account grows at 8% per year.
8%
S&P 500 8%
8%
Crediting
Formula 8%
$110,000
10% Bonus
$100,000
All guarantees are based
on the claims paying ability
of the insurance company
Participation rates will vary.
A 10% federal tax penalty 1 2 3 4 5 6
may apply to withdrawals Hypothetical example for illustration purposes only. Each product works differently. See product specific brochures and disclosures for more information.
taken prior to age 59 ½. Income Account varies by product and is only used to calculate lifetime payments and not available as a lump sum, cash surrender, or part of the death benefit calculation.

14. 9. Use the Guaranteed Income Account to
Calculate Your Lifetime Pension Income
To calculate the income stream, multiply the guaranteed income account value by
a factor based on your age e.g. 6% if you are between 70 and 80. That amount is
then guaranteed as long as you live*. If you pass away, your beneficiaries will
receive the cash remaining in your Index Account. There is a small fee for this Guaranteed Income Account
rider typically .45% - .5% .The fee is always deducted from Value is $149,654 x .06% =
your index value.
8%
$8,979 per year for life
S&P 500 8%
8%
Crediting
Formula 8%
$110,000
10% Bonus
$100,000
All guarantees are based
on the claims paying ability
of the insurance company
Participation rates will vary.
A 10% federal tax penalty 1 2 3 4 5 6
may apply to withdrawals Hypothetical example for illustration purposes only. Each product works differently. See product specific brochures and disclosures for more information.
taken prior to age 59 ½. *Excess withdrawals may impact the amount of lifetime income or deplete income stream.

15. 10. Withdrawals from Your Annuity
Deducted From Your Index Value
As income is withdrawn from your annuity the Index or Cash Accumulation Value is reduced. The
amount of reduction may be replaced by interest credited based on the rises of the corresponding
index. The LIBR income stream continues for life no matter the amount
the value of the Index or Cash Accumulation Value, even if it were to
go to zero.
$8,979 per year for life
8%
S&P 500 8% Index
Value or
8% Cash
Crediting Value
Formula 8%
$110,000 Break
Even
10% Bonus
$100,000
All guarantees are based
on the claims paying ability
of the insurance company
Participation rates will vary.
A 10% federal tax penalty 1 2 3 4 5 6
may apply to withdrawals
taken prior to age 59 ½. Hypothetical example for illustration purposes only. Each product works differently. See product specific brochures and disclosures for more information.

16. Component Summary
Index Value or Personal Pension or
Cash Accumulation Value Lifetime Income Value
Guaranteed Income Account Growth
Market Down = No Losses
Rate of 4% to 8%
Market Up = Market Linked
Create a Lifetime of Income
Interest Increase
Potential Principal Bonus Does Not Give Up Annuity Cash Value
Lock in Account Value Yearly Potential Annual Fee of .45% - .50%
Income Account Value for Calculating
Fixed Interest Alternative
Lifetime Income Payments
10% Penalty Free Withdrawals*
Potential Surrender Charges
Terminal Illness/Nursing Home Rider**
Lawsuit Protection (Check Your State)
No Yearly Administrative Fees
*A 10% federal tax penalty may apply to withdrawals taken prior to age 59 ½. **May vary by product and state

17. The Pros and Cons of
Fixed Index Annuities
Pros Cons
Safe and insured financial product Potential Length of Contracts
Tax Deferred Accumulation .5% Fee for Lifetime Income Benefit Rider
10% Penalty Free Withdrawals Potential Surrender Charges for Early
Access
Terminal Illness and Nursing Home Riders Often Misunderstood with Variable
Annuities
Lawsuit Protected in Many States Options Can be Complex
Some Annuity Products May be
Medicaid Friendly
No Administrative or Management Fees

18. How Do Insurance Companies Do It?
You elect not to take the
Insurance Company offers a
You purchase a Fixed Index guaranteed interest preferring to
guaranteed Fixed Interest of 3%
Annuity for $100,000. link your funds to a market
or $3,000 for the year.
index in hope of greater gain.
The Insurance Company takes If the S&P goes up the Insurance If the S&P goes down the
the $3,000 that it would have Company exercises the option Insurance Company cannot
given you and buys an S&P and credits you with interest exercise the option and loses
Institutional Call Option. based on the option purchased. the $3,000 option purchase price.
You do not suffer any losses
The Insurance Company has
since your monies were not
spent the same amount of money
invested in the market. You,
it had planned to spend within its
however, do not make any
original profit structure.
gains that year.
This is a hypothetical example for illustration purposes only