Fixed Indexed Annuities 2 Hour CE Course. Brought to by Financial Brokerage, Inc. and NAIFA of Omaha

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1 Fixed Indexed Annuities 2 Hour CE Course Brought to by Financial Brokerage, Inc. and NAIFA of Omaha

2 Two Basic Products Fixed Index Annuity Fixed Index Universal Life

3 Annuity Basics Definition of an annuity Five basic types What is a surrender charge/period? Liquidity Riders

4 Six Types of Annuities SPDA Single Premium Deferred Annuity FPDA Flexible Premium Deferred Annuity MYGA Multi-Year Guaranteed Annuity FIA Fixed Indexed Annuity SPIA Single Premium Immediate Annuity VA - Variable Annuity * Must hold a security license

5 Features and Benefits Surrender Period/Charges Typically on all annuity products except for immediate annuities Surrender period is a contractual timeframe the carrier defines for each annuity contract/product; client receives specific benefit(s) for holding the contract at least for its defined surrender period Surrender charges protect the carrier against early exit by the client from the contract Charges will vary by carrier and product

6 Liquidity Client is typically able to receive up to 10% free (of surrender charges) annually after first year Principal Accumulation Interest only Terminal illness and nursing home R.O.P 100% after surrender/contract period

7 Riders and Fees Additional features added to the contract with or without a fee Death Benefit Rider provides 28% in addition to help beneficiaries pay the taxes due Income Rider that provides an annual bonus that rolls up each year in deferral Terminal illness and nursing home

8 Bonus on Premium Varies widely by each carrier/product and may include: Up front on premium Vested over surrender period On all first year premium Could pay up to seven years Variety of percentages offered No fees/additional fees/reduced rates/longer surrenders Benefits

9 Types of Funds Non-Qualified After-Tax Dollars Not Tax-Deductible Income Taxes Have Been Paid Tax-Deferred Growth Ordinary Income Tax

10 Assets Such As Checking / Savings / Money Market Older Annuities Bank CDs Types of Funds Cash Value Life Mutual Funds, Stocks, Brokerage Accounts, Variable Annuities Must Hold a Securities License to Discuss

11 Types of Funds Qualified Purchased with Before-Tax Dollars Taxes Have Not Been Paid Growth is Tax-Deferred Ordinary Income Tax

12 IRA TSA / 403b 401k 457 Pensions SEP Types of Funds Assets Such As Note: Qualified and Non-Qualified money can t be commingled into one annuity

13 Taxation 1035 Exchange/Direct Transfer IRS Code Section 1035 Annuities Out of Surrender Life Cash Value CD s Mutual Funds, Stock & Brokerage Accounts, Variable Annuities Must Hold a Securities License to Discuss

14 Taxation Five Tips for 1035s/Direct Transfers Exchange the entire annuity when possible Repay loans if outstanding Titles of the annuity must be the same as the one being transferred Advise client to consult with tax advisor on the exchange Be aware of surrender charges Receiving Carrier Will Evaluate Closely for Suitability

15 Taxation Basics of Taxation Interest Only FIFO/LIFO Income Rider Annuitization Ordinary Income Tax 100% Withdrawal RMD

16 Taxation Key Points of Annuity Taxation Taxes paid when interest is withdrawn on non-qualified assets (LIFO) Exclusion ratio Taxes are paid on full amount of qualified withdrawal RMD required minimum distribution All withdrawals taxed as ordinary income 10% IRS penalty may apply if prior to 59½ No taxes paid at time of 1035 exchange/transfer

17 15 Minute Break

18 Fixed Indexed Market Evolution of Indexed Products FIAs Celebrated its 20 year Anniversary Over $396 billion since inception ( ) Total 2014 FIA sales were $48 billion Up 24% from th quarter of 2014 sales $12,167 million Up 3% over 4th quarter 2013 FIAs account for over 62% of all fixed annuity sales

19 Fixed Indexed Annuity Features and Benefits Guarantee principal 100% at the end of surrender period Guaranteed minimum rate of return compounded annually Linked* to an Index S&P 500 is most common CAP PAR Spreads *Client funds are not directly invested in the stock market

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21 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. An Indexed Annuity 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. * Not directly invested in the market

22 Index Crediting Crediting Methods Fixed Annual Point to Point Monthly Averaging Monthly Point to Point Inverse Performance Trigger

23 Fixed Indexed Annuity Caps Pars Spreads Caps - Company declares the cap each contract year of each annuity Pars - Typically they are set and locked in at 100% If no-cap strategy, then the par will be less and not locked in Spreads - Today there are not as many FIAs with spreads, but they typically were on the no-cap strategies How is the Fixed Indexed Annuity built? How the Watch is Built

24 Fixed Indexed Annuity Riders Terminal Illness / Nursing Home Income Riders Retain Control No Annuitization Guarantees an Annual Roll-up Rate/Bonus Wellness/Doubler/Multiplier - LTCi rider Bonus Annuity Value Income Value

25 Fixed Indexed Annuity Fact Finder / Compliance / Suitability Complete fact finder and financial statement Using approved pieces Suitability FIA Illustration Hypothetical See sample Income Riders See sample

26 Fixed Indexed Annuity Sales Concepts Safety net for trapeze artist If you were guaranteed no down side risk with only up side potential TIC TAC TOE TIC TAC TOE Reality Zone THANK YOU

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