1. FOR PRODUCER USE ONLY – NOT FOR DISSEMINATION TO THE PUBLIC Understanding IUL Presented by… Levi Robinson, CLU, ChFC, FLMI Director Product & Market Training American General Life

2. FOR PRODUCER USE ONLY – NOT FOR DISSEMINATION TO THE PUBLIC Agenda Life Insurance Uses IUL Value Proposition IUL How Does It Work Interest Crediting Options Cap/Participation Setting Process Policy Loans Questions?

3. FOR PRODUCER USE ONLY – NOT FOR DISSEMINATION TO THE PUBLIC Source: LIMRA The Case For IUL 2012 Stats

4. FOR PRODUCER USE ONLY – NOT FOR DISSEMINATION TO THE PUBLIC Life Insurance Uses… Replacing income lost due to the premature death of a family wage earner. Providing liquidity at the appropriate time to pay estate settlement costs. Transferring wealth free of income taxes to heirs in succeeding generations. Funding non-qualified executive benefits. Funding buy-sell arrangements to maintain business continuity. Supplementing retirement income.

5. FOR PRODUCER USE ONLY – NOT FOR DISSEMINATION TO THE PUBLIC Benefits of Life Insurance Premium Benefits Duration $10 $500 $1000 $2000 $3000 $4000 $5000 20406080 Minimum Premium = the lowest amount the insurance company will accept for life insurance death benefit based on your age and underwriting decision. The Highest Amount of Premium the government will allow to be paid into a life insurance contract without triggering a Modified Endowment Contract (MEC) MEC Limits Minimum Premium = the lowest amount the insurance company will accept for the life insurance death benefit based on your age and underwriting decision, aka, Term Premium The Highest Amount of Premium the government will allow to be paid into a life insurance contract without triggering a Modified Endowment Contract (MEC) Term Premium

6. FOR PRODUCER USE ONLY – NOT FOR DISSEMINATION TO THE PUBLIC Benefits of Life Insurance Premium Benefits Duration $100 $500 $1000 $2000 $3000 $4000 $5000 2040 6080 Term Premium = Tax Free Death Benefit Tax Free Death Benefit Tax Deferred Accumulation High Contribution Limits Access to Capital Competitive IRR Collateral Liquidity, Control Use Disability Protection Estate Tax Free Guaranteed Interest The Highest Amount of Premium allowed without triggering MEC. MEC Limits Bottom line, the more premium paid into a life insurance policy, the greater the benefits!

7. FOR PRODUCER USE ONLY – NOT FOR DISSEMINATION TO THE PUBLIC IUL Value Proposition Upside Potential No Downside Risk

8. FOR PRODUCER USE ONLY – NOT FOR DISSEMINATION TO THE PUBLIC Value Proposition Market Upside Downside Protection Long-Term Yield Advantage Over CAUL

9. FOR PRODUCER USE ONLY – NOT FOR DISSEMINATION TO THE PUBLIC What is IUL? A life insurance policy that combines the features & benefits of a traditional UL but uses a different crediting method for determining interest Indexed interest is based, in part, on the movement of a stock market index over a specific time period Potential to earn indexed interest is based on increases in an index, while offering a minimum interest rate guarantee (normally 0% - 2%) Potential for higher than average crediting rates compared to traditional UL

10. FOR PRODUCER USE ONLY – NOT FOR DISSEMINATION TO THE PUBLIC IUL vs Traditional UL Indexed UL Traditional UL Flexible Premium YES Permanent Insurance YES Designed to cover Insured’s lifetime YES Pays interest rate as determined by the company YES Net premiums are invested in and backed by the company’s general account YES Use “month-iversary” concept for COIs and other charges YES Include a flexible death benefit and a choice for the death benefit option YES Can include Rolling Target Premiums YES Provide for tax-deferred cash value accumulation YES Include the potential for significant cash value growth YES Incorporate guarantee features YES Include a guaranteed interest rate YES Allow for withdrawals and loans YES The major difference between traditional universal life and indexed universal life is the way interest is credited Upside earnings potential with index-linked interest crediting YESNO

11. FOR PRODUCER USE ONLY – NOT FOR DISSEMINATION TO THE PUBLIC

12. IUL Overview Different method for determining and crediting Non-guaranteed interest Fixed UL: declared interest - by carrier Index UL: indexed interest - reference stock market index General account product No policy owner investments in separate accounts (unlike VUL) Policy owner only chooses allocation to index crediting account No securities license required Improper product design/marketing can have securities implications

13. FOR PRODUCER USE ONLY – NOT FOR DISSEMINATION TO THE PUBLIC Interest Crediting

14. FOR PRODUCER USE ONLY – NOT FOR DISSEMINATION TO THE PUBLIC Crediting Options With index universal life insurance, you acquire the death benefit protection you need plus the opportunity to build cash value that you can access in the future for a variety of needs. Index universal life insurance offers you the flexibility to choose among various interest- crediting accounts that can fit your needs.

15. FOR PRODUCER USE ONLY – NOT FOR DISSEMINATION TO THE PUBLIC Crediting Options 1)Declared Interest Account 2)Index Interest Account with Annual Cap 3)Index Interest Account with Participation Rate Index universal life insurance gives you the ability to adjust to life’s changes.

16. FOR PRODUCER USE ONLY – NOT FOR DISSEMINATION TO THE PUBLIC Crediting Options

17. FOR PRODUCER USE ONLY – NOT FOR DISSEMINATION TO THE PUBLIC What Determines The Possible Interest Credits?

18. FOR PRODUCER USE ONLY – NOT FOR DISSEMINATION TO THE PUBLIC

19. Index Strategies An indexed strategy uses a formula that calculates interest based in part on the movement of a stock market index, such as the S&P 500 Index. Index UL has different index strategies where your clients can direct their money in an effort to take advantage of positive movements in a stock market index.

20. FOR PRODUCER USE ONLY – NOT FOR DISSEMINATION TO THE PUBLIC What Are The Moving Parts?

21. FOR PRODUCER USE ONLY – NOT FOR DISSEMINATION TO THE PUBLIC Participation Rate The Participation Rate is the percentage of index interest growth (if any) the policy owner receives as actual index interest credited to the policy in the year in which crediting occurs.

22. FOR PRODUCER USE ONLY – NOT FOR DISSEMINATION TO THE PUBLIC Understanding Participation Rates Example: Assuming no cap, a participation rate of 60% and a guarantee of 2%:  If the index increases 10% policy credited 6% (60% x 10%)  If the index increases 50%, policy credited 30% (60% x 50%)  If the index increases 0%, policy credited 2% (guarantee rate)  If the index decreases 10%, policy credited 2% (guarantee rate) Participation: the percentage of positive index movement which will be used in the crediting calculation Acts as one factor in determining a ceiling on crediting rate of the policy

23. FOR PRODUCER USE ONLY – NOT FOR DISSEMINATION TO THE PUBLIC Cap Rate The Cap Rate is the maximum point-to-point index interest growth (if any) the policy owner can receive as actual index interest credited to the policy.

24. FOR PRODUCER USE ONLY – NOT FOR DISSEMINATION TO THE PUBLIC Understanding Cap Rates Example: Assume a cap of 10% (participation rate of 100%) and a guarantee of 1%:  If the index increases 8%, policy credited 8% (100% x 8%)  If the index increases 20%, policy credited 10% (100% x 10%)  If the index increases 0%, policy credited 1% (guarantee rate)  If the index decreases 10%, policy credited 1% (guarantee rate) Point to Point: the period of time over which the index is being measured. Each index term has a beginning date and an ending date.

25. FOR PRODUCER USE ONLY – NOT FOR DISSEMINATION TO THE PUBLIC Determining Cap & Participation Rates Step 1 - Premium invested in fixed income investments Step 2 - Net investment earnings provide guaranteed interest rate Step 3 - Remaining earnings purchase one-year or longer call options on the specific index or indices. Price of call options relative to investment earnings is primary factor in determining participation rate This is commonly referred to as a carrier’s “option budget”

26. FOR PRODUCER USE ONLY – NOT FOR DISSEMINATION TO THE PUBLIC What Happens Next? Market rises, call options are exercised Policy credited with indexed interest Market decreases, options expire (worthless) Policy credited with guarantee, or Other selected policy options

27. FOR PRODUCER USE ONLY – NOT FOR DISSEMINATION TO THE PUBLIC IUL Cap Setting Process Policy Owner Company/Policy Value $100,000 Company/Policy Value $100,000 Corporate Bond 5%=$5,000 Corporate Bond 5%=$5,000 Investment Bank 12.00 cap=$4,000 Investment Bank 12.00 cap=$4,000 Policy Cash Value Corporate Bond Rate of Return Cost of Index Option Cap Rate $100,0005%$4,00012% Guarantee/ Spread Deducted $1,000 Guarantee/ Spread Deducted $1,000

28. FOR PRODUCER USE ONLY – NOT FOR DISSEMINATION TO THE PUBLIC Earned Rates Impact on IUL Source: US Treasury – treasury.gov and St. Louis Federal Reserve Bank – stlouisfed.org

29. FOR PRODUCER USE ONLY – NOT FOR DISSEMINATION TO THE PUBLIC Earned Rates Impact on IUL 6.0%Company’s Earned Rate on Assets - 0.5%Interest Spread/Guaranteed Interest 5.5%Option Budget (amount co. has available to purchase options) 5.5%Company’s Earned Rate on Assets - 0.5%Interest Spread/Guaranteed Interest 5.0%Option Budget (amount co. has available to purchase options)

30. FOR PRODUCER USE ONLY – NOT FOR DISSEMINATION TO THE PUBLIC Policy Loans

31. FOR PRODUCER USE ONLY – NOT FOR DISSEMINATION TO THE PUBLIC Policy Loan Types Fixed Loan – both the loan rate and the borrowed funds are fixed Variable Loan – Two types where both the loan rate and the borrowed funds participate in an index – True Variable loan - loan charge rate set by the Moody’s Corporate Bond Average while the funds continue to participate in the index account Fixed Loan with Participating Funds - Participating variable loan has a fixed loan rate while the funds continue to participate in the index account (less aggressive type of loan structure)

32. FOR PRODUCER USE ONLY – NOT FOR DISSEMINATION TO THE PUBLIC Variable Loans Pros & Cons Pros Allows indexed values to remain & participate in the performance of the index/indices account Allows the opportunity for the index to outperform the loan rate being charged. Heavily marketed by some carriers Variable loans illustrate higher disbursements compared to standard loans Becomes an illustration game - easy to out-illustrate other competitors, especially with a true variable loan structure Cons Possibility the amount credited from index interest or fixed interest accounts is less than the interest charged Risk if index performs at less than the interest charged, the policy could lapse or income reduced Illustrations almost always show a “positive” spread. Allows the opportunity for the index to outperform the loan rate being charged. Loan charge could change on previous loans

33. FOR PRODUCER USE ONLY – NOT FOR DISSEMINATION TO THE PUBLIC Illustration Comparisons Use several different illustrated rates Be sure your carrier illustrates index interest lower than the interest rate on a variable loan The greater the difference in outcomes – The greater the risk in the product It is impossible to know how often a policy will credit interest up to a caps Do a thorough review of all the other features and benefits of the policy

34. FOR PRODUCER USE ONLY – NOT FOR DISSEMINATION TO THE PUBLIC Why Index UL? Upside accumulation potential from index interest Interest based on a diversified equity position Downside cash value protection Guaranteed interest rates Eliminate losses Lock in gains Guaranteed death benefits thru secondary guarantees (Depending on product) Declared Interest Account Tax efficient distribution methods Overloan protection

35. FOR PRODUCER USE ONLY – NOT FOR DISSEMINATION TO THE PUBLIC Questions

36. FOR PRODUCER USE ONLY – NOT FOR DISSEMINATION TO THE PUBLIC Policies issued by: American General Life Insurance Company (AGL) 2727-A Allen Parkway, Houston, TX 77019 The United States Life Insurance Company in the City of New York (US Life) One World Financial Center, 200 Liberty Street, New York, NY 10281 The underwriting risks, financial and contractual obligations and support functions associated with the products issued by AGL or US Life are the issuing insurer’s responsibility. Guarantees are subject to the claims-paying ability of the issuing insurance company. US Life is authorized to conduct insurance business in New York. Policies and riders not available in all states. American General Life Companies, www.americangeneral.com, is the marketing name for a group of affiliated domestic life insurers, including AGL and US Life. ©2013. All rights reserved. AGLC106658