Insight on Annuities Good things you should know… The webinar will begin shortly. There is no audio at this time. This presentation is being recorded for your viewing pleasure at a future date. The attendance and proctor forms are available under ‘Materials’ in the Webinar’s Console to the right. The PowerPoint presentation is also available under ‘Materials’. You will receive the course number for your state near the end of class. Use the ‘chat’ window for questions on the content.

Welcome to your Insurance Community University Audio All of you are currently on mute Un-mute your own system Telephone Option Select Telephone on your screen Dial in the PIN number so that your number becomes active Microphone and/or Speaker Option You can use this option if you have a headset that you use with your computer 2 2

Participation & Chat Window You will receive information from the monitor via the ‘Chat’ window.  Please locate window in the control panel Q & A is welcomed during the presentation and at the end of the presentation You will find the question box on your control panel Write your question in that box and send it to the presenter/organizer The presenter will take those questions in the order submitted 3 3

DOI Requirements When you see a slide with the hand up symbol, touch the “hand” icon on your control panel Click ONCE only If you do not raise your hand, the monitor will be in contact with you in the chat box  If you are in a group, the designated proctor is responsible to make certain you are all in attendance at all times = Hand is down 4 4

Polling Throughout the class we will be conducting periodic polls We need 100% participation on the polls The polls are intended to check participation but also to create discussion topics throughout the presentation 5 5

DOI Requirements We will file your hours with the DOI after the completion of this webinar and we have received the attendance form. You have 48 hours to return the form You will be sent a Certificate of Attendance/Completion by email.  Please retain this for your records for five years. 6 6

Disclaimer Insurance forms and endorsements vary based on insurance company; changes in edition dates; regulations; court decisions; and state jurisdiction. This instructional materials provided by Insight is intended as a general guideline and any interpretations provided by Insight do not modify or revise insurance policy language. The authors of these materials, Insight Insurance Consultants is a division of Insight Consulting and Management Inc.: Insurance Community Center LLC and Quick life. In providing these materials, Insight, Insurance Community and Quick life assume neither liability nor responsibility to any person or business with respect to any loss that is alleged to be caused directly or indirectly as a result of the instructional materials provided. Copyright 2010 – 2013 All Rights Reserved www.insurancecommunitycenter.com

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Your Instructor Today Presented by: George Fraser, Director of Annuities Quick Life, a strategic partner of the Insurance Community Center

About George Fraser, III George Fraser has  over 40 years of Life and Annuity sales experience.  In that time, he has acted as an agent, General Agent and Vice President of Retail Sales for leading Insurance providers. George has served as National President of GAMA International, Chairman of the Board for AMTC as well as committee work for LIMRA.  He also serves as a Director for Rainmaker Advisory LLC a leading consulting firm within the retail insurance broking sector.

What this course will cover: What is an Annuity? Different Types of Annuities Contract Provisions Taxation of Annuities Common Annuity Riders Settlement Options Uses of Annuities

What is Retirement Income Planning? Accumulation Phase: earning income and goal setting Distribution Phase: ensuring that you do not outlive assets and maintaining an equitable lifestyle

What is Retirement Income Planning? Most people do not know how to convert Assets to Income External factors will impact planning more than ever Most people will have an income gap at retirement

External Forces Demographics USA Tax Policy Savings Patterns Social Security Decline in Traditional Pension Plans Unstable Economy

Why is Distribution Planning Important? Company paid pensions are a thing of the past Most people do not have a Financial Advisor Other than their home, 401(k) often is an individual’s largest asset Most people do not understand Tax Law Most people are not informed regarding Social Security Benefits

Baby Boomer Demographics 1946-1966: 80,000,000 babies born 1967-1986: 37,000,000 babies born 1.8 babies per family post baby boom 2.1 babies per family needed for zero population growth

Demographics 3.3 people working for every one retiree In 2030, one person working for every two retirees

Saving Patterns Over the last decade, Americans have been a nation of spenders…not savers Over the past five years, American workers have spent more than they have earned

Savings Rate Guidelines This data includes Social Security benefits.

Income Planning Risk: Longer Lives At Age 65, Your Probability of Living to Various Ages… Age Male Female One Member of Couple 80 71% 81% 94% 85 53% 65% 84% 90 34% 44% 63% 95 17% 23% 36% Source: Society of Actuaries Annuity 2000 Mortality Tables This data includes Social Security benefits

Income Planning Risk: Longer Lives Probability of… Chances Over the Next 20 Years… Worth Insuring Against? House Fire 5:1000 Yes Car Wreck 70:1000 85th Birthday 840:1000 Source: Hartford 2006 Countrywide Claim Frequency Report/ NAIC/Society of Actuaries

Income Planning Risk: Withdrawal Lives Source: Wiesenberger 1/07

Polling Question #1

What is an Annuity? Attributes: A contract between and individual and an insurance company to pay out a benefit at a later date. An accumulation phase and distribution phase Can pay an income for life; regardless of the amount of principal going in.

What are Different Types of Annuities? Variable Annuities Fixed Annuities & Fixed Index Annuities Deferred Annuities Single Premium Immediate Annuities

Miscellaneous Contract Provisions Free Look Provision 30 days in California Can be jointly owned

Taxation of Annuities Funds grown on a tax deferred basis LIFO – Last in, first out. Distributions are considered a return of gain first out. Annuity exclusions table, premiums divided by life expectancy to determine basis excess amount is considered taxable income.

Surrender Charges Charged if funds are taken out before the surrender period has expired Vary in length depending on the product Typically 4-9 years in length depending on the product and are declining each year Bonus products typically have longer surrender periods

Surrender Charges Waived for withdrawals up to 10% during the surrender charge period but charged on excess Nursing home waiver of charges if confined to a home for more than 90 days. The waiver applies to withdrawals after the 1st contract year Terminal illness waiver applies after the 1st contract year if you are not expected to live more than 12 months

Settlement Options Lifetime Income Joint & Survivor 10 or 20 year certain and continuous Refund annuity 10 or 20 years Fixed period

What is Annuitization? The systematic distribution of principal and interest over the lifetime of the annuitant. That income is guaranteed for life no matter how long the individual lives or if they outlive the principal they started with Once a settlement option is elected, annuitant cannot change that election. Important to understand the difference between annuitization and an income benefit rider

How are Income Benefits Calculated? Fixed life annuities are calculated using annuity rates Rates vary from Company to Company Longer life span = lower rates Example: 25 Years ago the annuity rate for a male age 65 might have been 9 per 1000 of principal or 9,000 a year for a straight life annuity Joint life annuity income options and refund income options create less immediate income Today that same individual might only get a rate of 7.5

How are Income Benefits Calculated? Variable annuity settlement options are calculated differently At the point where the annuitant elects a settlement option the contract agrees to the distribution of annuity units. Example: Because the amount of principal the annuitant has, the contract would guarantee the payment of 100 units a month. At a beginning value of $10 a unit, the first month’s payment would be 1,000 If the value goes to $11 / unit, the annuitant would receive $1100

Polling Question #2

Variable Annuities Requires securities licensing Underlying sub accounts investing in stocks and bonds Gains or losses depend on the performance of the sub accounts in the market Asset Allocation Most companies allow custom account selection or have pre-populated allocation formulas

Variable Annuities At retirement has a formula to convert settlement options in to annuity units Has all of the settlement options available Some companies offer bonus products Most companies have the living and enhanced death benefit riders

Single Premium Immediate Annuities Most commonly used at retirement Payment made to insurance company for immediate income All settlement options available Used when goal is to annuitize contract

Fixed Index Annuities Does not require a securities license, only state life insurance licensing Is a fixed annuity by definition Was designed to compete with the equity based products Participant has choice of picking an index or a fixed interest option, or a combination of both Has all the other features of fixed and variable annuities

How Fixed Annuities Work The insurance company offers an index to participate in or a fixed interest rate option Premiums are not actually put in the index, S&P 500 as an example Index is only used to determine the amount of interest credited to the cash value Each year values have a stepped up basis based on the index. It cannot decline

How Fixed Annuities Work Cont’d There are three indexing methods Annual reset, index value at the end of the contract year is compared to the index value at the beginning of the contract year. Any gain is credited as interest High water mark, uses index values during the course of the year to determine gains Point to Point, compares the change in the index between two distinct times

Factors in Determining Crediting Rate CAP, some index annuities have a maximum rate of interest they will credit regardless of index result PARTICIPATION RATE, some carriers will credit a portion of the index gain, i.e., the index earned 10% but the participation rate is 80% or 8% would be the crediting rate SPREAD, the difference between the index rate and actual rate credited at a selected point in time

Bonus Index Annuities Same as regular index annuities, except that money is credited to the cash value when annuity is established Bonuses range from 5-10% depending on the carrier Typically have longer surrender period charges depending on the amount of the bonus

Polling Question #3

Annuity Riders Depending on the carrier available for both fixed and variable products Charged for in the expenses of the contract, typically 25 basis points The three most common riders are: Guaranteed minimum income benefit Enhanced death benefit Earnings preservation benefit

Guaranteed Minimum Income Benefit For people who do not want to tie up all funds while annuitizing With some carriers can benefit both spouses Allows withdrawals at a stated rate while still having availability of cash If you do not take a withdrawal interest is credited at the rate stated, typically 5-5 ½ In the case of an index annuity if a higher rate is credited the value steps up You can never loose gains

Enhanced Death Benefit Rider Pays amount of money to a named beneficiary either premiums paid or account value which ever is greater Account increases in value each year either by returns to cash value or a stated rate of return, typically 5% Can take withdrawals while maintaining death benefit

Earnings Preservation Rider Provides additional death benefit based on earnings in the account to offset potential tax costs

Polling Question #4

Issues to Consider California has CE requirements to sell annuities If you are selling to seniors in California need to understand specific laws In the next 20 years more annuities will be sold than in history of product

Uses of Annuities As an accumulation vehicle product, can be used for people retiring in 20 years Frequently for those who are risk adverse For individuals looking for a lifetime income option without a fixed company pension For individuals with a 401(k) and are looking to convert all or part of the funds to base income

Use of Annuities For people who have no income producing assets who want to create income For those that want income and also want to pass assts to another generation or spouse For people looking to create liquidity in their estate at death

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Contact Information George Fraser III Main Phone: 925 634 4914 (main) Cell Phone: 408 313 1165 Email: george@rainmakeradvisory.com www.quicklifecenter.com

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