1. Nationwide IUL Web Ex Series.
Advanced IUL: Part 3
Common Misperceptions of IUL
For Insurance professional use only

2. Disclosure
Life Insurance issued by Nationwide Life Insurance Company and/or Nationwide Life and Annuity Insurance Company.
Guarantees are subject to the claims paying ability of Nationwide.
As your clients' personal situations change (i.e., marriage, birth of a child or job promotion), so will their
life insurance needs. Care should be taken to ensure this product is suitable for their long-term life
insurance needs. They should weigh any associated costs before making a purchase. Life insurance has
fees and charges associated with it that include costs of insurance that vary with such characteristics of the
insured as gender, health and age, and has additional charges for riders that customize a policy to fit their individual needs.
Riders may be known by different names in different states, may not be available in every state and have an additional charge associated with them.
Indexed universal life insurance policies are not stock market investments, do not directly participate in any stock or equity investments, do not receive dividend or capital gains participation. Past index performance of an index is no indication of future crediting rates.
Not a deposit Not FDIC or NCUSIF insured Not guaranteed by the institution. Not insured by any federal government agency May lose value
© 2012 Nationwide Financial Services, Inc. All rights reserved
For Insurance Professional Use Only - Not for distribution with the public FLM-0811AO

3. Nationwide YourLife® Indexed UL
S & P 500® is a trademark of Standard & Poor's and has been licensed for use by Nationwide Life Insurance Company and Nationwide Life and Annuity Insurance Company.  Nationwide YourLife® Indexed UL is not sponsored, endorsed, sold or promoted by Standard & Poor's and Standard & Poor's makes no representation regarding the advisability of investing in the Product.
NASDAQ®, OMX®, NASDAQ OMX®, NASDAQ-100®, and NASDAQ-100 Index® are registered trademarks of The NASDAQ OMX Group, Inc. (which with its affiliates is referred to as the "Corporations") and are licensed for use by Nationwide Life Insurance Company or Nationwide Life and Annuity Insurance Company.  Nationwide YourLife® Indexed UL has not been passed on by the Corporations as to their legality or suitability.  Nationwide YourLife® Indexed UL is not issued, endorsed, sold, or promoted by the Corporations.  The Corporations make no warranties and bear no liability with respect to the product.
The "Dow Jones Industrial AverageSM" is a product of Dow Jones Indexes, the marketing name and a licensed trademark of CME Group Index Services LLC ("CME"), and has been licensed for use.  "Dow Jones®", "Dow Jones Industrial AverageSM" and "Dow Jones Indexes" are service marks of Dow Jones Trademark Holdings, LLC ("Dow Jones") and have been licensed for use for certain purposes by Nationwide Life Insurance Company or Nationwide Life and Annuity Insurance Company.  Nationwide YourLife® Indexed UL based on the Dow Jones Industrial AverageSM is not sponsored, endorsed, sold or promoted by CME Indexes, Dow Jones or their respective affiliates, and CME Indexes, Dow Jones and their respective affiliates make no representation regarding the advisability of trading in such product(s).
For Insurance Professional Use Only - Not for distribution with the public FLM-0811AO 3

4. IMPORTANT BENCHMARKING INFORMATION
All competitive information is believed to be current as of January 2013 for NLG; June 2013 for IUL. Information was compiled from the latest company software. American General WinFlex Rev ; Prudential 43.00; Hartford ; AVIVA ; Penn Mutual Web Illustrator 1/8/13; Lincoln 16.0; Pacific Life ; John Hancock 9.0.1; and ING
All information presented is reliable as at the date of comparison and Nationwide has made every effort to make sure it is reliable; however, it's possible that there are differences between the products compared which are not reflected and/or of which we are unaware. For this reason, its completeness and accuracy cannot be guaranteed. These are mere hypothetical scenarios and not intended to represent any specific client or situation.
Read Slide

5. For Insurance professional use only
Agenda
IUL Hedging and what can cause companies to reduce Cap rates?
What to look for when you see high Cap rates?
Annual Point to Point example
Nationwide’s YourLife ® Indexed UL Description & Benchmarking Examples
Monthly Averaging is different from Monthly Cap
Guaranteed Floor compared to Cumulative Guarantee
Pro Rata Crediting compared to End Point Crediting (Impact on Distributions)
Illustrating IUL’s
Understanding IUL Statements
Variable Loans
Nationwide’s YourLife® IUL Strengths
Thank you for joining today’s call. Please note, this is IUL Education Series 3 out of 4, and is intended for advisors who already have a good understanding of what Indexed UL is.
Today we will be discussion various topics which are - commonly misunderstood in Indexed UL.
Specifically, today we will cover: Read slide
For Insurance professional use only

6. What occurs in IUL Hedging Transaction?
Hypothetical Example:
Allocate: 100% to 1 year Indexed Interest Strategy Account
0% Guaranteed Floor; 12% Cap; S&P 500®
Investment Bank gives Quote – for the cost of 12% Cap & 0% Floor: 5%
Gross Premium
$1,100
Net Premium
$1,000
$ General Account
General Account Accumulates to $1,000
This supports Guaranteed Floor
Options
Cost of
$50.00
This represents potential growth and will only pay up to the Cap
Please note, this is merely a hypothetical example and the actual assumptions could change in a real life scenario. For this example, let’s assume policy holder allocates 100% to the Indexed Interest Strategy Account. And, naturally, like other UL’s premium it is subject to sales loads. So, here in this example we are assuming $1,100 gross premium –a premium load of $100 for a Net Premium of $1,000.
So, what does the insurance company do with the $1,000? Well, as a hypothetical example, the insurance company would first contact an Investment Bank and find out that for a 12% Cap, 0% Floor, S/P 500 Index - - that the cost is 5%. So, the insurance company would take $50.00 off the $1,000 and send that to the Investment Bank to purchase the the hedge or package of Options to match the 12% Cap; 0% Floor. And, what about the remaining $950.00? For the remaining $ and this is very important, the remaining $ of the policy holders monies remains in the insurance companies General Account.
Now, of course the insurance company needs to be comfortable with the quote of 5% given them - - and consider – are they comfortable with 5%? Does the insurance company believe that they can earn $ during the next year off the clients $950 off the General Account? If the answer is Yes, then they are able to offer the 12% Cap & 0% floor.
OK, so we look at the slide and see $950 is invested in the insurance companies General Account. The insurance company will earn a 5% (.05263) yield in the GA. This helps with the down side protection and represents the floor. So, if the index(s) return result was negative, the guaranteed floor would then apply (in this case 0%).
And, as we look at the slide, only $50.00 of the clients $1000 net premium has gone to purchase the hedge, or to purchase the options. These options provide the upside potential. So, when the underlying index(s) has had positive performance (S&P 500 in this example), then this will be applied as interest rate to their indexed interest strategy account up to the Cap rate. And, should the underlying index have negative performance, then when the option matures - -the option would expire, and the hedge would pay nothing.
For Insurance professional use only

7. When could IUL Cap rates be reduced?
What could cause a company to lower Cap Rates?
Insurance Companies’ Budget – Earnings impacted by General Account Investments
Cost of Hedge (the Price of Options) – Impacted by the Markets
Hypothetical Example
Earnings for Hedge Budget 5% 5% 4%
Hedge Cost 5% 6%
Cap Rate
12%
Cap lowered
Please note – there are 2 major factors that influence what Cap rate (and Par rate) the insurance company can offer. First – obviously the actual price of options from the Investment Banks in the market. And, it turns out that the more volatile markets are, the more costly options prices become.
In addition, a second factor influencing the Cap rates (and Par rates) that insurance companies can offer is related to the interest rates. So, if interest rates are low, or declining than the insurance company has less money (interest they can earn) from their general account investments from which to afford the cost of the options. Therefore, companies are more likely to reduce Cap rates, when interest rates decline or the cost of options go up.
Read Slide from Left to Right
5%, 5% able to offer 12% Cap
4%, 5%, Cap rate lowered
5%, 6%, Cap rate lowered
For Insurance professional use only

8. What to look for when you see high Cap rates
When You see High Cap rates (14% or higher)
including No Cap rate (un-capped), you may find:
Participation Rate less than 100%
Bond included in Underlying Index Blend
Segment Maturity of more than 1 year
Spread (percentage subtracted from credit applied)
Daily Averaging or Monthly Averaging Crediting Method
Segment Charge for the Crediting Method
Higher base policy charges
Read Slide
Please, note: these are general observations on what to look for. However, these guidelines will not always hold true
For Insurance professional use only

9. Common Misperceptions in IUL
True/False
Comment
Insurance company
keeps index credit that is above Cap rate? For example: Underlying Index grew by 15% and Cap rate of 12%
False
Insurance company would purchase package of options to match the 12% Cap and therefore not receive anything above the 12%.
The base policy charge structure could be as impactful as indexed interest strategy selected
True
Do not forget to review the competitiveness of the base policy charges of the IUL product
Dividends are included in tracking the performance of the underlying index
Since the insurance company is not purchasing stocks of the index(s), they are not receiving dividends.
A company could do this, but the cost of these options would likely be more impacting Cap rates
Read Slide
For Insurance professional use only

10. Example: Spouses with Policy Issued 1 Month Apart
Hypothetical Example Annual Point to Point:
Wife’s policy issued September: Index Credited 12% at maturity
Husband’s policy issued October: Index Credited 0% at maturity
Assumptions: S&P 500®, 12% Cap Rate, 0% Guaranteed Floor
Read Slide:
Hypothetical Example, of what could happen when husband and wife apply for IUL policy at the same time, and Wife’s policy is issued 1 month earlier than Husband’s.
On 9/1/2010, the market starting rising. By 10/1/2010, it was up about 8%. It continued to do well for the annual period ending on 9/1/2011 (the black line), so the point-to-point return was 12% after applying the cap. In this example wife would have received 12% index interest credit.
By 10/1/2011, the market had gone back down about 7%. But, if you go back to October 2010 – because it was such an impressive month - - that the following October 2011 there was no growth. As a result - -the point-to-point return was negative (the red line). In this example the husband would have received 0% index interest credit.
So the index segment ending 9/1/11 earns the cap rate of 12%. And, the segment ending one month later 10/1/11 earns the floor 0%.
Note to speaker: This is a hypothetical example intended to show how much difference 1 month can make. At Nationwide our sweep dates are on the 15th of each month.
For Insurance professional use only

11. Nationwide’s YourLife® IUL
Read Slide
Just want to take a moment to highlight the 2 crediting methods that Nationwide uses
For Insurance professional use only

12. Comparing IUL’s: Solving for Premium at 6%
Scenario: Male, 50, NTP, $1 million Face amount, Solve to Endow Premium age 120
Company
Premium
Target Premium
Rolling TP’s
John Hancock-Protection IUL
$9,637
$9,390 No
Nationwide – YourLife Indexed UL
$10,571
$21,788
Yes
Axa-Athena Indexed UL II
$11,100
$20,130
Prudential-Index Advantage UL
$11,351
$10,880
Hartford-Frontier Indexed UL
$11,586
$20,800
Pacific Life-Indexed Accumulator 4
$11,866
$23,900
Lincoln-LifeReserve IUL Protector
$11,957
$14,800
ING-Indexed UL-Global Choice
$12,387
$22,080
Aviva-Advantage Builder IV
$12,473
$10,037
Penn Mutual-Accumulation Builder II IUL
$12,596
$19,551
Nationwide consistently offers a competitive price when solving for premium at various ages. This example is for Male age 50.
Review slide
For Insurance professional use only

13. Comparing IUL’s: Solving for Premium at 6%
Scenario: Male, 60, NT, $1 million Face amount, Solve to Endow Premium age 120
Company
Premium
Target Premium
Rolling TP’s
John Hancock-Protection IUL
$19,630
$21,450 No
Nationwide-You’re Life Indexed UL
$21,151
$32,288
Yes
Hartford-Frontier Indexed UL
$21,671
$34,500
Axa-Athena Indexed UL II
$22,364
$37,560
Lincoln-LifeReserve Indexed UL Protector
$23,497
$28,300
Pacific Life-Indexed Accumulator 4
$22,622
$38,990
ING-Indexed UL-Global Choice
$23,609
$32,160
Prudential-Index Advantage UL
$23,712
$23,460
Aviva-Advantage Builder IV
23,942
$20,555
Penn Mutual-Accumulation Builder II IUL
$24,889
$35,200
Nationwide consistently offers a competitive price when solving for premium at various ages. This example is for Male age 60.
Review Slide
For Insurance professional use only

14. Monthly Averaging is Different from Monthly Cap
Monthly Averaging: each month the changes of the index(s) are recorded At the end of the segment period the average of these values (added together & divided by 12) are compared to initial value to determine the rate credited subject to the annual Cap and Participation rates.
Monthly Cap (Monthly Point-to-Point): each month the percentage change of the index(s) from the prior month are recorded. The percentage changes are subject to the Cap and Participation rate which is applied monthly. At the end of the year these values are added together to determine the credit.
Note: Nationwide offers Monthly Averaging Indexed Interest Strategy, not Monthly Caps
Crediting Method
Comment
Monthly Averaging
Monthly Averaging is likely to have higher utilization and recognition from advisors than the Monthly Cap.
Monthly Cap
Expect to see lower Cap rates with Monthly Caps - - such as 3%-4% when compared to Monthly Averaging Cap rates.
Read slide
For Insurance professional use only

15. Cumulative Guarantee vs. Guaranteed Floor
They are Not the Same
Guaranteed Floor
Minimum amount credited at each Segment Maturity
Usually 0%. Could be: %, 1% or 2%
Cumulative Guarantee (aka: “True Up” on Surrender or Alternate Policy Value)
Minimum amount credited upon Death, Surrender or Policy Maturity
Does Not apply credit at Segment Maturity
Cumulative Guarantee could be 1%, 2%, 3%
Please note: Cumulative Guarantees also have a Guaranteed Floor (usually 0%)
Example: Underlying Index Growth 0% at Segment Maturity
Cumulative Guarantees vs. a Guaranteed Floor.
Well, as you know there are a handful of companies out in the market place who have a guaranteed floor above 0% on IUL. This means even if the underlying index is in the negative or earns 0% you will still get the guaranteed floor credit above 0% (for example of 1% or 2%).
At the same time, there are more companies in the market place that offer what’s sometimes referred to as a Cumulative Guarantee. This type of guarantee insures that a minimum amount is credited upon death, surrender or policy maturity. Unfortunately a number of folks confuse the two and there is a big difference.
Let’s take a look at the example in the slide: And, if we didn’t know the difference between a Guaranteed Floor and a Cumulative Guarantee, you might be more impressed with a 3% rate. So, in the example - - Let’s assume Underlying Index Return was 0% at Segment maturity. The product that offered a Guaranteed floor with a 1% rate would credit 1% once the segment matured. However, the product that offered a Cumulative Guarantee of 3% would credit 0% at segment maturity. The product that offered the 3% Cumulative Guarantee was not surrendered, did not mature and there was no death (so the 3% credit was not paid).
At Nationwide we do Not offer Cumulative Guarantees. We do have a Guaranteed floor of 0%.
Note to speaker: Cumulative guarantees may be referred to as standard non-forfeiture minimum guarantee. There are many variations on this guarantee. Some carriers do not true-up their guarantees until death, lapse, or surrender. Still others do not “true-up” unless death occurs. If guarantees are important in the consideration of which product is appropriate, you should carefully evaluate the minimum guarantees- far beyond the rate. Read exactly how the rate is credited, not just the number, as it may perform differently than you think.
Type
Percent Applied at
Segment Maturity
Guaranteed Floor 1% 1%
Cumulative Guarantee 3% 0%
For Insurance professional use only

16. Impact of Distributions on Crediting
End Point Crediting: Index credit is applied to any remaining value in indexed interest strategy account(s) at segment maturity
Pro Rata Crediting: May apply some index credit at segment maturity on amounts distributed (loans/withdrawals) prior to segment maturity
Note: Nationwide utilizes End Point Crediting method
Still Receive Index Interest Credit if take distribution prior to segment maturity?
New Premium Restrictions or Matured Segment Premium Restrictions if take unscheduled distribution?
End Point
Yes, however only receive credit applied to values remaining in segment at maturity No
Pro Rata
Yes, may also receive some index credit based on the length of time the money was allocated to indexed interest strategy prior to distribution
Yes, some companies may have “Lock Out Period” which prohibits new premium from being allocated to that Indexed Interest Strategy for 1 year
What happens if you take a distribution, prior to the index interest segment maturing? Can you still get some index credit?
Read Slide
For Insurance professional use only

17. Illustrating Indexed UL
Illustrating IUL’s
Companies assume Various Default Illustrated Rates
Companies assume Various Look back Periods to determine Default Rate
What rate should you use to illustrate IUL?
Company’s Default Rate, or
Flat rate: 6%, or 7%
Term
Description
Usually
Sometimes
Default Rate
Rate company uses to hypothetically project values in illustration
6% - 8%
4.60%
10%
Look Back Period
Number of preceding years used in formula to determine the default rate
20 – 30 yrs
10 yrs
28 yrs
40 yrs
Read Slide
For traditional UL’s we know that companies use new money rates or portfolio rates as part of their formula to determine the interest rate we see in the illustration. Since IUL’s credited rate is based off a formula that takes into account the performance of the underlying index, along with the participation rate, guaranteed floor and cap rate – how is an insurance company supposed to come up with a projected illustrated rate of an IUL? The solution was the Default Illustrated Rate. The Default rate is the rate you will automatically see today in the illustration. Within limits which vary by company, you can usually lower the default rate and sometimes increase the default rate in the software.
As we know the NAIC Model regulations do apply to Indexed UL. However, there are currently limited guidelines related to the formula companies can choose to use in determining their default illustrated rate. One variable in this formula is the Look Back Period assumption. This look back period is the number of years the company “looks back in time” to track the performance of the underlying index. The number of years could be anywhere from 15 to 40 years. Then the company uses their formula to apply the Par, Cap, & Floor, to the historical rates and the number of years in their look back to determine their default rate. Please note – each company has its own formula and 2 companies may have the same indexed interest strategy rates and same look back period but still reflect a different default rate in their illustration (For example: tracking a different day of the month to capture the indices performance, or could do the math differently – order of operations like applying the participation rate before or after the cap - - it’s usually before).
OK, now that we have covered what the Default Rate and Look Back period is – here is the important question. What rate should you use to illustrate IUL? Well the decision is yours. One school of thought is you should use the companies default rate since it takes that companies specific crediting into account as the most fair representation. But, as we seen – companies can vary the look back period and formula which some perceive would give them an edge on their illustrated default rate.
Another school of thought is to run a flat rate such as 6% or 7% in an effort to level the playing field. But, some criticize this method since it doesn’t fairly portray the strategies historical rates, since you would be running companies with the same rate even if their historical average was higher. The last philosophy - - is to run IUL 1% to 2% above the going rate of traditional UL’s current rates.
I will share, that most advisors I have spoken with tell me they prefer to run a flat rate. Again, the choice is yours. My caution to you is past performance is NOT necessarily representative of future results. And, that it’s important to set reasonable expectations for your clients and then to monitor these policies in your reviews like you would any other policy. And, the higher rate you illustrate, the more critical it is to monitor.
Notes to Speaker: The NAIC Life Insurance Illustration Model Regulation does apply to IUL but does not provide guidance specific to Index products vs. other UL products. The ACLI has a task force called the IUL Task Force which drafted suggestions for IUL Illustrations with respect to the illustrated interest rates. Currently the recommendation has not been endorsed by the ACLI nor has it been incorporated into any other documents such as actuarial guidelines, regulations, etc.
For Insurance professional use only

18. Common Misperceptions of IUL
True/False
Comment
A client can transfer indexed segment values in the middle of the segment term
False
You can only transfer monies out of a segment once it has matured.
Participation rates applied before Cap rates are the same as a Participation Rate applied after the Cap Rate
Usually you will find that the Participation rates are applied before the Cap Rate
All Point to Point Crediting Methods exclusively measure 2 points in time
Some include in their formula an averaging out the final year (such as average out 5th year)
A guaranteed Cap rate could be as low as 0%
True
This is unusual, usually guaranteed Cap rates are between 2% - 4%
NLG Riders on IUL products can have allocation requirements* in order to be eligible for the guarantee
With some companies this means allocating more to the Fixed account. And, with other companies it means allocating more to the Indexed Interest Strategy Account
Read Slide*Note:
*For Nationwide, the allocations must be 100% to the Indexed Interest Strategy Account(s) when selecting our optional Extended Death Benefit Guarantee Rider
For Insurance professional use only

19. Understanding IUL Statements
Reflecting Index Credit on Statement
Most companies do Not reflect credit applied to Indexed Interest Strategy for that year in the Annual Statement
A few companies send out Monthly Confirmation Statements (including Nationwide)
Example:
January 4, Policy Issued
January 15, Monies Swept from Fixed Account into Indexed Interest Strategy
January 3, Statement Reporting Period 365 days (1/4/13 – 1/3/14)
January 4, Statement Automatically Generated
(but Indexed Interest Strategy hasn’t matured yet)
January 15, Index Interest Strategy Segment Matures (too late for statement)
If you have heard from some “buzz” from your peers – that there is something “different” about Indexed UL and policy holder annual statements, then your right. Yes, it is the case that most companies do Not reflect credit applied to the indexed Strategy for that year in the annual statement. So, what’s going on and why does this happen? Let’s take a look at the example
Let’s take a look at the example in the slide
So, what does this mean? For most companies including Nationwide, it means for the policy holders 1st annual statement, there will be no reflection of credit to the indexed strategies. It also means for future years, they will always be reflecting the prior year’s credit. For example: Year 1 annual statement will reflect no credit for underlying index(s); Year 2 will reflect Yr 1 credit; Yr 3 will reflect Yr 2 credit and so on. As a result, this can sometimes cause confusion when the company publishes that the segment your client was in - - matured and credited 9%, but then you see the PH statement and it shows 0%. One solution that Nationwide came up with to help clear this up is to send out Confirmation Statements. This means that we send out Confirmation statements for the following transactions: (a) after we credit interest at segment maturity – (even though it won’t be reflected on that years statement). We also send Confirmation Statement out (b) after we made a requested transfer; and also (c.) after we applied premium.
Again, at Nationwide, Yes, we will send out a Confirmation Statement that reflects the % of interest credited to the indexed strategy.
Now –on a side note, our example above assumed a 1 year indexed Strategy (so segment maturity of 1yr). What if you had a segment maturity of 2 years, or 3 or 5 years? Well, then you have the same issue – but now over a longer period of time. At Nationwide we offer two 1 year index interest strategies: Annual PtP and Monthly Average.
For Insurance professional use only

20. For Insurance professional use only
Variable Loans
Variable Loans: Also known as Participating or Alternative Loans
When loaned values continue to participate in the growth potential of underlying index(s) instead of being transferred to a separate loan account.
Nationwide offers Alternative Loans with a current loan interest rate of 4.22% subject to a maximum charge capped at 8% See advisor guide for details.
Note: Intended for clients with appropriate capital and risk tolerance. Utilizing variable loans can result in earning a lower interest rate credited to the accumulated value than the rate charged on the loan balance.
For example: if have $1,000,000 loan value and a 0% return in the underlying index(s) and 5% variable loan charge then: $50,000 is the amount the loan has grown by based on the 5% charged rate.
Read slide
Note to speaker: In IUL Web Ex Session 4, we will review the unique and suitable sales applications of Variable loans.
For Insurance professional use only

21. Variable Loan compared to “Fixed” Loan Example
Loan Spread Example:
Nationwide offers Alternative Loans (Variable) & Declared Loans (Fixed)
-This is an example of potential loan spreads for both declared rate loans and alternative loans.
-The first example shows the advantages of an Alternative loan when the Moody’s rate is lower.
-The second example illustrates how the declared rate loan can offer a more conservative approach to borrowing money in situations where the Moody’s rate is higher than the Indexed Interest Credited Rate.
-The second alternative loan example shows how the charged rate will not exceed the maximum alternative loan interest charged rate – which is 8%.
For Insurance professional use only

22. Nationwide’s YourLife® Indexed UL
Product Highlights
Low Cost Premium Solves
Accumulation & Income (Insurance Based Retirement Planning)
Optional Extended Death Benefit Guarantee Rider (EDBG)
- Premium Based guarantees for EDBG (not shadow account)
- Unlimited interest free catch up*
Policy Management Program
- Automated Premium Monitor; Automated Income Monitor
Indemnity Long Term Care Rider (IRC Sec 7702b type)
*Note: this applies to premium patterns paid beyond the first 10 years of the policy
Read Slide
For Insurance professional use only

23. What we will cover next time
Advanced Applications of IUL (Part 4)
July 23rd, 2013; 2:00 p.m. Eastern
Sales Applications
Premium Financing
IUL and Executive Bonus
IUL and Estate Planning with NLG Rider (EDBG rider)
Illustrating Variable Loans
For Insurance professional use only