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Agent Use Only. Not for dissemination to public. Index Annuities 101 For Agent Use Only — Not for Dissemination to the Public.

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Presentation on theme: "Agent Use Only. Not for dissemination to public. Index Annuities 101 For Agent Use Only — Not for Dissemination to the Public."— Presentation transcript:

1 Agent Use Only. Not for dissemination to public. Index Annuities 101 For Agent Use Only — Not for Dissemination to the Public.

2 Agent Use Only. Not for dissemination to public. Upside Potential & Downside Protection with Index Annuities

3 Agent Use Only. Not for dissemination to public. Introduction Q: Why Were Index Annuities Invented? A: Higher Potential Return than Current Traditional Fixed Products 2

4 Agent Use Only. Not for dissemination to public. Know Your Client ■Risk Tolerance ■Sophistication Level ■Long-Term Objectives 7

5 Agent Use Only. Not for dissemination to public. Stocks / Securities Mutual Funds Fixed Annuities CDs & Savings Accounts Index Annuities Risk Tolerance Graph of Products

6 Agent Use Only. Not for dissemination to public. Index Annuities ARE Fixed Annuities

7 Agent Use Only. Not for dissemination to public. Safety Tax Deferral Yield Liquidity Estate Planning Fixed Annuities Have… S T Y L E STYLESTYLE

8 Agent Use Only. Not for dissemination to public. Fixed Annuity Concept ST Y LE Index Deferred Annuity Minimum Guaranteed Surrender Value return 9.71% to 21.95% (assumed 2% or 3%) Current? *Assuming contract is held to term and an underlying guarantee of 90% of the premium accumulating by 2% or 2% per year. Also assumes no withdrawals during the period. Traditional Deferred Annuity Minimum Guaranteed Credited Rate return 22% (assumed 2%) Current Rate Return of Multi-Year Guaranteed Product 55% (assumed 4.5%)

9 Agent Use Only. Not for dissemination to public. Pricing: Traditional Fixed Annuity 6.00% 4.00% Interest Credited Minimum Guarantees 4.00% Interest Credited Minimum Guarantees 2.00% Comp Profits Expense 2.00% Comp Profits Expense Benefits: Death, Surr, RMD, etc. Benefits: Death, Surr, RMD, etc. 15

10 Agent Use Only. Not for dissemination to public. Pricing: Index Annuity 6.00% 4.00% Minimum Guarantees Option Budget 2.00% Comp Profits Expense Benefits: Death, Surr, RMD, etc. Index Option Index Return = Interest Credit 16

11 Agent Use Only. Not for dissemination to public. What is an Index? ■Index – measures the performance or price movement of a specific set of publicly-traded stocks. A few examples of popular items that can be indexed: ●S&P 500 ●Dow Jones Industrial Average ●Russell 2000

12 Agent Use Only. Not for dissemination to public. Why are Index Annuities so Complicated? What about all those “Moving Parts?” Do we really need all the special terminology?

13 Agent Use Only. Not for dissemination to public. The Index Annuity… How it’s all Done 1.Calculate the Index Change Point-to-Point Average 2.Over what time period or periods Annually Monthly Other 3.Adjust the Index Gain Point APoint B

14 Agent Use Only. Not for dissemination to public. 4% Company Budget 8% Cost of option 1 year- S&P 500 Option 100% performance Pricing How do you balance the budget?

15 Agent Use Only. Not for dissemination to public. 4% Cost of option 1 year- S&P 500 Call Option plus a 50% Participation Rate 4% Company Budget “Spendable” On behalf of client

16 Agent Use Only. Not for dissemination to public. The Index Annuity… How it’s all Done 1.Calculate the Index Change Point-to-Point Average 2.Over what time period or periods Annually Monthly Other 3.Adjust the Index Gain Index Cap Index Spread Participation Rate

17 Agent Use Only. Not for dissemination to public. Participation Rate = 50% Change in the Index = 12% You would earn 6% ■Participation Rate – the percentage of the annual increase in the index that will be used to calculate interest. What Is A Participation Rate? ■When is it best? If increase in the index is greater than caps, but less than what an the index spread calculation will deliver.

18 Agent Use Only. Not for dissemination to public. What Is An Index Cap? Annual percent change in an Index = 8% Annual Cap = 7% You would earn 7%. ■Index Cap – the maximum rate of interest the account can earn per time period. ■When is it best? If the expected increase in the index is a low to moderate amount for the contract year.

19 Agent Use Only. Not for dissemination to public. What Is An Index Spread? Index Spread = 2% Change in the index = 5% You would be credited 3%. ■Index Spread – the difference between what an index earns and what the account is credited ■When is it best? If increase in the index is expected to be a very large amount so that the interest rate derived overcomes a participation rate calculation or the cap calculation.

20 Agent Use Only. Not for dissemination to public. 1.Calculate the Index Gain 2.Over what time period or periods 3.Adjust the Index Gain 4.Credit the Index Interest Annually Two-Years (Biennial) Three-Years (Triennial) Policy-term Balancing Act The whole process is a Balancing Act The Index… How it’s all done

21 Agent Use Only. Not for dissemination to public. How do I sell less than ALL the upside?

22 Agent Use Only. Not for dissemination to public. $100,000 Deposit in S&P 500 1/01/02 = $80,067 on 1/01/09 S&P 500 1/01/02 -23% 1/01/031/01/041/01/051/01/061/01/071/01/081/01/ % +9% +3% +14% +4% -38%

23 Agent Use Only. Not for dissemination to public. 1/01/02 -23% IA 0% Index Annuity IA +13% $100,000 Deposit in S&P 500 Index Annuity 1/01/02 = $130,811 on 1/01/09 1/01/031/01/041/01/051/01/061/01/071/01/081/01/ % +9% +3% +14% +4% -38% IA +1.5% IA +4.5% IA +7% IA +2% IA 0%

24 Agent Use Only. Not for dissemination to public.

25 Annuities and Withdrawals ■Free withdrawals ■Withdrawal charges ■Withdrawing more per time period than allowed could cause you to lose money ■Proper planning is best

26 Agent Use Only. Not for dissemination to public. Start Identifying Index Annuity Clients

27 Agent Use Only. Not for dissemination to public. Identifying Prospects CHARACTERISTICS OF CLIENT Traditional Fixed Annuity Prospect Index Annuity Prospect Income Annuity Prospect Saving in CDs, MoneyMarkets, EE Series Bonds or Traditional Fixed Annuities Prefers to avoid taxes on interest growth in the near term. Concerned about market risk Wants protection of their principal Seek guarantees, not huge risk takers, want to know exactly how their money will grow and what they can access when they take withdrawals. Want to try to improve on traditional fixed rates, looking to have a higher return and more opportunity for growth. Need guaranteed income stream and have assets to convert.

28 Agent Use Only. Not for dissemination to public. ■60 year old woman, changing jobs ■Moderate to low risk tolerance ■Controlled risk with upside potential ■Immediate growth would calm her ■Retiring in 5 yrs (distributions will begin) Do You Recognize This Client? Solution: Index Annuity with Shorter term or ability to annuitize in 5 yrs Bonus

29 Agent Use Only. Not for dissemination to public. ■55 year old male with deferred comp from prior employer ■Well versed in equities ■Wants upside potential, but tired of the thought of “losing any more” Do You Recognize This Client? Solution: Index Annuity with Longer term Higher caps in lieu of bonus

30 Agent Use Only. Not for dissemination to public. ■70 year old couple ■Investment experience limited to 401k ■Want to maximize inheritance they leave to children, but are not risk takers ■No plans for taking distributions Do You Recognize This Client? Solution: Index Annuity with Longer term product with Annuity Value DB Crediting strategy that uses more that one index, with heaviest weight to best performer

31 Agent Use Only. Not for dissemination to public. Asking the Right Questions… ■ What are the Client’s current uses or plans for this particular money? ■ What’s the Need for Safety or Income? ■ Has the Client experienced gain or loss? ■ Are they looking to defer taxes? ■ What’s their current financial condition?

32 Agent Use Only. Not for dissemination to public. How to Start the Annuity Conversation ■Beneficiary reviews ■Prospecting letter ■Client Appreciation events

33 Agent Use Only. Not for dissemination to public. Q & A Thank You ! American General Annuity Marketing , option 3

34 Agent Use Only. Not for dissemination to public. Important Information This presentation provides general educational information. It does not specifically describe any product. Annuity contracts are not insured by the FDIC, the Federal Reserve Board or any similar agency. These contracts are not a deposit or other obligation of, nor are they guaranteed or endorsed by, any bank or depository institution. Below are a few indices that an index annuity may utilize. An index annuity with a variety of indices to choose from may help to reduce your risk. “Standard & Poor’s®,” “S&P®,” “S&P 500®,” “Standard & Poor’s 500” and “500” are trademarks of The McGraw-Hill Companies, Inc., and have been licensed for use by AGL and USL. This product is not sponsored, endorsed, sold or promoted by Standard & Poor’s, and Standard & Poor’s makes no representation regarding the advisability of purchasing this product. The Dow Jones EURO STOXX 50® is the intellectual property of (including registered trademarks) Stoxx Limited, Zurich, Switzerland and/or Dow Jones & Company, Inc., a Delaware corporation, New York, USA, (the “Licensors”), which is used under license. This product that is based on the Index is not sponsored, endorsed, sold or promoted by the Licensors and neither of the Licensors shall have any liability with respect thereto. The Nikkei Stock Average ("Index") is an intellectual property of Nikkei Inc.* "Nikkei", "Nikkei Stock Average", and "Nikkei 225" are the service marks of Nikkei Inc. Nikkei Inc. reserves all the rights, including copyright, to the Index. Nikkei Digital Media, Inc., a wholly owned subsidiary of Nikkei Inc. calculates and disseminates the Index under exclusive agreement with Nikkei Inc. Nikkei Inc. and Nikkei Digital Media Inc. are collectively “Index Sponsor”. * Formerly known as Nihon Keizai Shimbum, Inc. Name changed on January 1, The Products are not in any way sponsored, endorsed or promoted by the Index Sponsor. The Index Sponsor does not make any warranty or representation whatsoever, express or implied, either as to the results to be obtained as to the use of the Index or the figure at which the Index stands at any particular day or otherwise. The Index is compiled and calculated solely by the Index Sponsor. However, the Index Sponsor shall not be liable to any person for any error in the Index and the Index Sponsor shall not be under any obligation to advise any person, including a purchaser or vendor of the Products, of any error therein. In addition, the Index Sponsor gives no assurance regarding any modification or change in any methodology used in calculating the Index and is under no obligation to continue the calculation, publication and dissemination of the Index. American General Life Companies, is the marketing name for the insurance companies and affiliates comprising the domestic life operations of American International Group, Inc. including American General Life Insurance Company, The United States Life Insurance Company in the City of New York, AIG Life Insurance Company, and American International Life Insurance Company. AGLC103686


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