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LMG2054F0506_R0207 FOR BROKER USE ONLY. Not for public use. 1 Understanding Index Annuities Legacy Marketing Group SM Producer Training Presentation.

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Presentation on theme: "LMG2054F0506_R0207 FOR BROKER USE ONLY. Not for public use. 1 Understanding Index Annuities Legacy Marketing Group SM Producer Training Presentation."— Presentation transcript:

1 LMG2054F0506_R0207 FOR BROKER USE ONLY. Not for public use. 1 Understanding Index Annuities Legacy Marketing Group SM Producer Training Presentation

2 LMG2054F0506_R0207 FOR BROKER USE ONLY. Not for public use. 2 This training presentation is designed to ensure your understanding of the: General mechanics of flexible premium fixed deferred index annuities. Importance of determining the suitability of this type of annuity product for your client. This presentation is not designed to fully train you on any specific annuity. For product specifics, refer to LegacyNet ®, the annuity contract, product brochures, and sales guides.

3 LMG2054F0506_R0207 FOR BROKER USE ONLY. Not for public use. 3 Basic Concepts of Index Annuities An index annuity (IA) offers the same features and guarantee of principal as a traditional fixed deferred annuity. The main difference is: Traditional fixed deferred annuity — Interest is determined and declared each year by the insurer. Index annuity — Interest is based on a crediting formula linked to an independent stock market index. (You will learn how the different crediting formulas work in this training.)

4 LMG2054F0506_R0207 FOR BROKER USE ONLY. Not for public use. 4 Basic Concepts of Index Annuities (cont’d) An IA is not a stock market investment, a variable annuity, a security, or an indexed mutual fund. An IA does have a minimum guarantee. It also provides clients an opportunity to achieve potentially greater interest crediting, without the market risk. An IA provides a minimum guarantee that varies by product. A typical guarantee may be 1-3% annually on 87.5% of premium.

5 LMG2054F0506_R0207 FOR BROKER USE ONLY. Not for public use. 5 IA Key Terminology Cap — The maximum percentage of interest credited to the strategy value at the end of the term. Floor — The minimum interest credited during a term period. The floor is usually 0%, meaning no interest will be credited if the index declines. This should not be confused with the minimum contractual guarantee..

6 LMG2054F0506_R0207 FOR BROKER USE ONLY. Not for public use. 6 IA Key Terminology (cont’d) Interest Crediting Strategies—The options that determine how index growth is credited to your client’s annuity. May also be referred to as Crediting Rate Strategies or Crediting Methods, depending on the annuity. Liquidity — Access to at least a portion of the client ’ s premium. As a general rule, IAs are not designed to address ongoing liquidity needs.

7 LMG2054F0506_R0207 FOR BROKER USE ONLY. Not for public use. 7 IA Key Terminology (cont’d) Participation Rate — The percentage of index increase that the client receives. Term — The period over which index-linked interest is measured. Interest is credited at the end of the term. Minimum Guarantee — Varies by product, but a typical guarantee is 1-3% annually on 87.5% of premium.

8 LMG2054F0506_R0207 FOR BROKER USE ONLY. Not for public use. 8 IA Crediting Strategies The following descriptions provide a basic understanding of current crediting strategies. They are not a prediction of how crediting strategies will perform in the future. Not every crediting strategy is appropriate for every client. Strategy availability varies by product, product version, and state. Strategies may be added or discontinued at any time. Please visit LegacyNet for current availability.

9 LMG2054F0506_R0207 FOR BROKER USE ONLY. Not for public use. 9 IA Crediting Strategies Legacy offers products with two categories of crediting strategies: Shorter-term strategies: Annual reset (point-to-point) with cap. Annual reset (point-to-point) with participation rate. Monthly averaging. Monthly cap. Gain-triggered.

10 LMG2054F0506_R0207 FOR BROKER USE ONLY. Not for public use. 10 IA Crediting Strategies Longer-term strategies: Step Forward Strategy SM. Long-term* (point-to-point) with cap. Long-term* (point-to-point) with participation rate. *For example: 3-year, 5-year, 6-year, and 10-year strategies may be available. The length of the long-term strategies varies by product, product version, and state. See LegacyNet ® for current availability.

11 LMG2054F0506_R0207 FOR BROKER USE ONLY. Not for public use. 11 IA Crediting Examples The following examples show hypothetical index returns, caps, and participation rates and how these impact contract crediting. The examples are intended for training purposes only. Please refer to the appropriate Earnings Rate Update for current rates and caps. Past crediting performance is no guarantee of future crediting performance.

12 LMG2054F0506_R0207 FOR BROKER USE ONLY. Not for public use. 12 Annual Reset Strategy (Point-to-Point) This strategy type measures index growth year by year, resetting the index’s starting point annually at the level where it stands at the beginning of each year. The annual results are used to calculate the crediting rate. Depending on the strategy, either a participation rate or cap will apply.

13 LMG2054F0506_R0207 FOR BROKER USE ONLY. Not for public use. 13 Annual Reset Strategy (Point-to-Point) With Cap Pros: Easy to understand and performs well in a volatile market. The contract owner participates in index increases but is protected by a floor when the index trends down. Cons: May have lower caps than a longer- duration strategy.

14 LMG2054F0506_R0207 FOR BROKER USE ONLY. Not for public use. 14 Annual Reset Strategy (Point-to-Point) With Cap (cont’d) Crediting Example 1 Assumptions: $100,000 premium. 8% cap. No withdrawals during the term. Index increases by 11.82% during the term. 100% of the index gain, up to the cap, is credited for an end-of-term value of $108,000. This is locked in and becomes the starting point for the next term.

15 LMG2054F0506_R0207 FOR BROKER USE ONLY. Not for public use. 15 Annual Reset Strategy (Point-to-Point) With Cap (cont’d) Crediting Example 2 Assumptions: $100,000 premium. 8% cap. No withdrawals during the term. Index decreases by 4.08% during the term. With a 0% floor, principal is protected from loss even though the index return is negative. The end-of-term value is $100,000. This remains the starting point for the next term.

16 LMG2054F0506_R0207 FOR BROKER USE ONLY. Not for public use. 16 Annual Reset Strategy (Point-to-Point) With Participation Rate Pros: Performs well in an increasing market. The contract owner participates in index increases but is protected by a floor when the index trends down. Cons: May not be as simple for clients to understand as a straight point-to-point strategy.

17 LMG2054F0506_R0207 FOR BROKER USE ONLY. Not for public use. 17 Annual Reset Strategy (Point-to-Point) With Participation Rate Crediting Example 1 Assumptions: $100,000 premium. 70% participation rate. No withdrawals during the term. Index increases by 11.82% during the term. 70% of the index gain ($11,820) is credited for an end-of-term value of $108,274. This is locked in and becomes the starting point for the next term.

18 LMG2054F0506_R0207 FOR BROKER USE ONLY. Not for public use. 18 Annual Reset Strategy (Point-to-Point) With Participation Rate (cont’d) Crediting Example 2 Assumptions: $100,000 premium. 70% participation rate. No withdrawals during the term. Index decreases by 4.08% during the term. With a 0% floor, principal is protected from loss even though the index return is negative. The end-of-term value is $100,000. This remains the starting point for the next term.

19 LMG2054F0506_R0207 FOR BROKER USE ONLY. Not for public use. 19 Annual Reset Strategy Monthly Averaging This strategy type measures the index growth over a one-year period. At the end of the one- year period, the interest credited is determined, in part, by comparing the average of the past 12 monthly values with the value of the index at the beginning of the one-year period.

20 LMG2054F0506_R0207 FOR BROKER USE ONLY. Not for public use. 20 Annual Reset Strategy Monthly Averaging (cont’d) Pros: Performs well in a volatile market because it smoothes out the highs and lows of index fluctuation. Cons: Does not perform well in a steadily rising market, and may not be as simple for clients to understand as a straight point-to-point strategy.

21 LMG2054F0506_R0207 FOR BROKER USE ONLY. Not for public use. 21 Annual Reset Strategy Monthly Averaging Crediting Example 1 Assumptions: $100,000 premium. 7% annual cap. No withdrawals during the term. 100% of the average monthly gain, up to the cap, is credited for an end-of-term value of $103,650. This is locked in and becomes the starting point for the next term. Month Index Return January 12.13% February0.59 March4.26 April5.84 May7.86 June4.35 July7.81 August-5.74 September5.32 October-3.45 November4.46 December1.57 Average3.65%

22 LMG2054F0506_R0207 FOR BROKER USE ONLY. Not for public use. 22 Annual Reset Strategy Monthly Averaging Crediting Example 2 Assumptions: $100,000 premium. 7% annual cap. No withdrawals during the term. With a 0% floor, principal is protected from loss even though the index return is negative. The end-of-term value is $100,000. This remains the starting point for the next term. Month Index Return January 2.13% February0.59 March4.26 April-5.84 May-7.86 June4.35 July-7.81 August-5.74 September5.32 October-3.45 November4.46 December1.57 Average-0.17%

23 LMG2054F0506_R0207 FOR BROKER USE ONLY. Not for public use. 23 Annual Reset Strategy Monthly Cap This strategy measures the index growth over a one-year period. A cap is applied to each monthly gain. The monthly returns are totaled at the end of the one-year period. The interest credited is determined, in part, by comparing the total of the past 12 monthly values with the value of the index at the beginning of the one-year period.

24 LMG2054F0506_R0207 FOR BROKER USE ONLY. Not for public use. 24 Annual Reset Strategy Monthly Cap Pros: Performs well in a volatile market because it captures the month-to-month changes of index fluctuation. Cons: May set up unrealistic expectations for clients.

25 LMG2054F0506_R0207 FOR BROKER USE ONLY. Not for public use. 25 Annual Reset Strategy Monthly Cap Crediting Example 1 Assumptions: $100,000 premium. 2.75% cap. No withdrawals during the term. The monthly gains, up to the cap, are totaled and 100% of the gain is credited for an end- of-term value of $107,960. This is locked in and becomes the starting point for the next term. MonthIndex ReturnStrategy Return January 6.13% 2.75% February0.59 March-4.26 April May June July August-5.74 September October-3.45 November December1.57 Total 7.96%

26 LMG2054F0506_R0207 FOR BROKER USE ONLY. Not for public use. 26 Annual Reset Strategy Monthly Cap Crediting Example 2 Assumptions: $100,000 premium. 2.75% monthly cap. No withdrawals during the term. With a 0% floor, principal is protected from loss even though the index return is negative. The end-of-term value is $100,000. This remains the starting point for the next term. MonthIndex ReturnStrategy Return January-1.56% February-2.08 March April-6.17 May-8.80 June-7.25 July-7.90 August0.49 September October November December-6.03 Total-32.28%0.00%

27 LMG2054F0506_R0207 FOR BROKER USE ONLY. Not for public use. 27 Gain-Triggered Index Strategy SM This strategy compares the index value on the last day of the term with the index value at the beginning of the term. If the index increases or remains unchanged, the rate specified on the allocation date will be credited. If the index has decreased in value, no interest will be credited.

28 LMG2054F0506_R0207 FOR BROKER USE ONLY. Not for public use. 28 Gain-Triggered Index Strategy SM Pros: Performs best in slightly rising markets. One of the easiest IA crediting strategies for clients to understand because there is no cap or participation rate to explain. Cons: Does not perform well in markets with downturns followed by large upswings.

29 LMG2054F0506_R0207 FOR BROKER USE ONLY. Not for public use. 29 Gain-Triggered Index Strategy SM Crediting Example 1 Assumptions: $100,000 premium. 5% specified rate. No withdrawals during the term. Index increases by 1.50% during the term. The specified rate (5%) is credited for an end-of-term value of $105,000. This is locked in and becomes the starting point for the next term.

30 LMG2054F0506_R0207 FOR BROKER USE ONLY. Not for public use. 30 Gain-Triggered Index Strategy SM Crediting Example 2 Assumptions: $100,000 premium. 5% specified rate. No withdrawals during the term. Index decreases by 5.64% during the term. With a 0% floor, principal is protected from loss even though the index return is negative. The end-of-term value is $100,000. This remains the starting point for the next term.

31 LMG2054F0506_R0207 FOR BROKER USE ONLY. Not for public use. 31 Long-Term Strategy* ( Point-to-Point) This strategy measures the difference between the index value on the last day of the term and the index value on the day premium was originally allocated. The result is used to calculate the crediting rate. Depending on the strategy, either a participation rate or a cap will apply. *For example: 3-year, 5-year, 6-year, and 10-year strategies may be available. The length of the long-term strategies varies by product, product version, and state. See LegacyNet ® for current availability.

32 LMG2054F0506_R0207 FOR BROKER USE ONLY. Not for public use. 32 Long-Term Strategy ( Point-to-Point) (cont’d) Pros: Performs best in a bullish market environment. Cons: Does not perform well in a highly volatile market that does not trend up over time. Clients who want to monitor gains may be frustrated because index gains are not realized until the end of the term.

33 LMG2054F0506_R0207 FOR BROKER USE ONLY. Not for public use. 33 Long-Term Strategy (Point-to-Point) With Cap Crediting Example 1 Assumptions: $100,000 premium. 10% cap. No withdrawals during the term. Index increases by 19.50% during the term. 100% of the index gain, up to the cap, is credited for an end-of-term value of $110,000. This is locked in and becomes the starting point for the next term.

34 LMG2054F0506_R0207 FOR BROKER USE ONLY. Not for public use. 34 Long-Term Strategy (Point-to-Point) With Cap Crediting Example 2 Assumptions: $100,000 premium. 10% cap. No withdrawals during the term. Index decreases by 7.63% during the term. With a 0% floor, principal is protected from loss even though the index return is negative. The end-of-term value is $100,000. This remains the starting point for the next term.

35 LMG2054F0506_R0207 FOR BROKER USE ONLY. Not for public use. 35 Long-Term Strategy (Point-to-Point) With Participation Rate Pros: Performs well in an increasing market. The contract owner participates in index increases but is protected by a floor when the index trends down. Participation rates may be higher than shorter-term strategies. Cons: Does not perform well in a highly volatile market that does not trend up over time. Clients who want to monitor gains may be frustrated because gains are not realized until the end of the term.

36 LMG2054F0506_R0207 FOR BROKER USE ONLY. Not for public use. 36 Long-Term Strategy (Point-to-Point) With Participation Rate Crediting Example 1 Assumptions: $100,000 premium. 80% participation rate. No withdrawals during the term. Index increases by 19.50% during the term. 80% of the index gain ($19,500) is credited for an end-of-term value of $115,600. This is locked in and becomes the starting point for the next term.

37 LMG2054F0506_R0207 FOR BROKER USE ONLY. Not for public use. 37 Long-Term Strategy (Point-to-Point) With Participation Rate Crediting Example 2 Assumptions: $100,000 premium. 80% participation rate. No withdrawals during the term. Index decreases by 7.63% during the term. With a 0% floor, principal is protected from loss even though the index return is negative. The end-of-term value is $100,000. This remains the starting point for the next term.

38 LMG2054F0506_R0207 FOR BROKER USE ONLY. Not for public use. 38 Step Forward Strategy SM ( Annual Point-to-Point 3-Year High-Water Mark Strategy) This strategy measures the difference between: The index value on the last day of each year during a three-year term. The index value on the day premium was originally allocated. It locks in gains every three years at the highest contract anniversary value.

39 LMG2054F0506_R0207 FOR BROKER USE ONLY. Not for public use. 39 Step Forward Strategy SM (Annual Point-to-Point 3-Year High-Water Mark Strategy) (cont’d) Pros: Caps are generally higher than other types of strategies. Locks in caps for three full years. Cons: May be more difficult to explain to clients. Clients who want to monitor gains may be frustrated because gains are not realized until the end of the term.

40 LMG2054F0506_R0207 FOR BROKER USE ONLY. Not for public use. 40 Step Forward Strategy SM Crediting Example 1 Assumptions: $100,000 premium. 9% cap. No withdrawals during the term. Anniversary values: – $110,000 end of Year 1. – $120,000 end of Year 2. – $129,503 end of Year % of the index gain, up to the cap, is credited. The end-of-term value is $129,503. This is locked in and becomes the starting point for the next term.

41 LMG2054F0506_R0207 FOR BROKER USE ONLY. Not for public use. 41 Step Forward Strategy SM Crediting Example 2 Assumptions: $100,000 premium. 9% cap. No withdrawals during the term. Anniversary values: – $130,000 end of Year 1. – $140,000 end of Year 2. – $129,503 end of Year % of the index gain, up to the cap, is used in calculating the year-end values. The highest anniversary value is locked in even though the index declines between that date and the end of the term. This value, $140,000, is locked in and becomes the starting point for the next term.

42 LMG2054F0506_R0207 FOR BROKER USE ONLY. Not for public use. 42 Need-To-Know When Identifying and Communicating With the Index Annuity Buyer

43 LMG2054F0506_R0207 FOR BROKER USE ONLY. Not for public use. 43 Index Annuity Buyer Need-To-Know In general, index annuity buyers are as young as their late 40s. Because index annuities are designed for people with a relatively long investment horizon, younger clients looking for safety of principal are ideal candidates. Consider the shorter surrender charge products for older clients who may have less need for liquidity. Other buyer types include people who invest in bonds and/or bond mutual funds and are accustomed to risk on a portion of their invested savings. These buyers typically do not need to access their premium except in emergencies.

44 LMG2054F0506_R0207 FOR BROKER USE ONLY. Not for public use. 44 Index Annuity Buyer Need-To-Know (cont’d) IRA and tax-qualified accounts are appropriate if clients do not need to begin taking minimum required distributions (MRDs) within the term period. Clients may incur loss of interest if the MRD is required before the end of the strategy term. Index annuities are best suited for clients with long- term investment horizons and long-term accumulation needs. When recommending an index annuity for all or part of a client’s premium, avoid comparing it with a securities or other investments.

45 LMG2054F0506_R0207 FOR BROKER USE ONLY. Not for public use. 45 Index Annuity Buyer Need-To-Know (cont’d) Help clients plan for retirement by emphasizing these points about an index annuity: Offers a combination of safety (guarantee of principal) and a rate of return that may outpace inflation. Provides the potential for returns that may be greater than those available with money-market funds, savings accounts, CDs, and fixed-rate annuities, but with no additional risk of principal.

46 LMG2054F0506_R0207 FOR BROKER USE ONLY. Not for public use. 46 Index Annuity Buyer Need-To-Know (cont’d) Remember: Do your fact-finding. Assess your clients’ goals. Determine your clients’ long- and short- term needs to ensure the suitability of your recommendations.

47 LMG2054F0506_R0207 FOR BROKER USE ONLY. Not for public use. 47 Index Annuity Buyer Need-To-Know (cont’d) Remember: Understand the product you are selling. Emphasize the contract minimum guarantees. Market the product as a fixed annuity, not as an investment or security. Explain how and when the cap or participation rate can change.

48 LMG2054F0506_R0207 FOR BROKER USE ONLY. Not for public use. 48 Index Annuity Buyer Need-To-Know (cont’d) Remember: Emphasize the protection from market loss. Describe the IA as a long-term retirement vehicle. Explain when and how interest is credited.

49 LMG2054F0506_R0207 FOR BROKER USE ONLY. Not for public use. 49 Index Annuity Buyer Need-To-Know (cont’d) Remember: Interest earnings are not credited until the end of the index term. Interest will only be credited to the values remaining at the end of the term. Therefore, it is recommended that any withdrawals from the index strategies either be taken at the end of the term or come from the Guaranteed One-Year (Fixed Rate) Strategy.

50 LMG2054F0506_R0207 FOR BROKER USE ONLY. Not for public use. 50 Index Annuity Buyer Need-To-Know (cont’d) Remember: Even though index annuity values are affected by an external index, they are not an investment in the stock market and do not participate in any stock, bond, or equity investments. The index does not reflect dividends paid on the stocks underlying the index.

51 LMG2054F0506_R0207 FOR BROKER USE ONLY. Not for public use. 51 Index Annuity Buyer Need-To-Know (cont’d) Do not: Focus on the index interest features without explaining the fixed annuity features such as guarantees and income options. Use investment terms such as “stock market,” “security,” “investment returns,” or “Wall Street” when describing index annuities.

52 LMG2054F0506_R0207 FOR BROKER USE ONLY. Not for public use. 52 Index Annuity Buyer Need-To-Know (cont’d) Do not: Use sales material that is not approved by the insurance company. Compare index annuities to mutual funds. Compare index annuities to variable annuities.

53 LMG2054F0506_R0207 FOR BROKER USE ONLY. Not for public use. 53 Resources Visit under the Products tab for resources, including:www.legacynet.com Sales Guides. Quick Reference sheets. Marketing materials (brochures, inserts, and preapproved ads).

54 LMG2054F0506_R0207 FOR BROKER USE ONLY. Not for public use. 54 Resources (cont’d) Visit under The Forms Store tab for resources, including:www.legacynet.com State-specific forms. Applications. New Business forms.

55 LMG2054F0506_R0207 FOR BROKER USE ONLY. Not for public use. 55 Resources (cont’d) Visit under the Education tab for client management resources, including:www.legacynet.com Fact-Finder. Client Data Worksheet.

56 LMG2054F0506_R0207 FOR BROKER USE ONLY. Not for public use. 56 Resources (cont’d) Information is also available from your upline or Marketing Field Support, , Ext

57 LMG2054F0506_R0207 FOR BROKER USE ONLY. Not for public use. 57 Thank You! We appreciate the opportunity to do business with you. Click here to complete your index annuity trainingClick here to complete your index annuity training.


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