SHENANDOAH LIFE ANNUITIES

Transcription

1 ANNUITIES AGENT GUIDE SHENANDOAH LIFE ANNUITIES FOR AGENT USE ONLY This piece is not intended to create public interest in an insurance product, an insurer, or an agent.

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3 SHENANDOAH LIFE ANNUITIES For use with Safe Choice I (A N, Q, NN, NB, QN, QB - 5/98) Safe Choice II (A-3010-N-1/03, A-3010-Q-1/03) Single Premium Immediate Annuity (Policy Form #425-3/82 & 426-7/84, 426-7/84) Single Premium Deferred Annuity, SPDA1 (Policy Form #A-3003-N, A-3003-Q-6/95) Single Premium Deferred Annuity, SPDA2 (Policy Form #A-3004-N, A-3004-Q-6/95) Flexible Premium Deferred Annuity, FPDA1 (Policy Form #A-3005-N, A-3005-Q-6/95) Flexible Premium Deferred Annuity, FPDA2 (Policy Form #A-3006-N, A-3006-Q-6/95) Surrender Charge Waiver Rider (Form #AR /95) State suffixes and/or revision dates are applicable to the form numbers where there are state-specific versions of the form. Consult the State Approval Chart on StarNet for availability of these products in your state. Contents 2...Annuity Basics 3...Deferred Annuities Portfolio Overview 4...Safe Choice Annuities 5...Shenandoah Series Annuity Portfolio 8...IRAs, SEPs and Keogh 12...General Questions 13...Individual Retirement Annuities 16...Non-Qualified Product Questions 19...Sample Applications With StarNet access, you can view not only this agent guide, but all of our marketing materials! In addition, you can view bulletins, print out applications and state-required forms, look at product ads, and even check your pending business! The future is in your hands with StarNet from Shenandoah Life! For more information, please contact Elaine Michael at , ext

4 Annuity Basics For your clients, planning for their financial security is a top priority. Annuities provide a cost-effective way to help your clients meet their goal whether it s providing current income needs, saving for a child s education, or building their retirement nest egg. Annuities are distinctive accumulation products that can provide income for a specified number of years or for life. Your clients can purchase an annuity on an installment basis with regular payments or with a single payment. In addition, they can have income payments begin at the time of purchase or at some future date. With any deferred annuity, whether purchased in a lump sum or installments, interest accumulates tax-deferred until it is withdrawn. When your clients are ready to begin receiving payments, they can choose among several payout options. A life annuity with a certain period pays an income to your client for life, but with a guaranteed minimum number of payments so that if your client dies within that period, these payments are paid to a beneficiary. A joint and survivor annuity provides payments for as long as either your client or his beneficiary lives. A period certain annuity provides a specific number of payments to your client. Your clients may also use an insurance company annuity to fund their individual retirement account. Annuity IRAs have a special advantage because unlike many other IRAs, they can guarantee an income for life. A straight life annuity pays an income to your client for life, with no subsequent payments due to anyone else after their death. A straight life annuity typically has the largest payout. This general information is intended to be accurate based on Shenandoah Life s understanding and interpretation of current tax laws, which are subject to change. For any particular situation in which legal advice or other expert assistance is required, the services of a competent professional should be sought. Shenandoah Life gives neither legal nor tax advice. 2

5 Deferred Annuities Portfolio Overview Product Guaranteed Surrender Penalty-Free Fees/Loads Minimum Special Rate Charges Withdrawal Premium Features Nonbonus Guaranteed 8,7,6,5,4,3, Return of Premium Safe 2,1,0 During first policy year: Choice I Bonus interest-only withdrawals Surrender Charge 9,8,7,6,5,4, up to 10% of accumulation Waiver Rider 3,2,1,0 value, must be systematic, (optional) $5,000-NQ 3.0% no surrender charge. None $2,000-Q SPDA1 5,4,3,2,1 Base Plan 3.0% SPDA1 Bonus 6,5,4,3,2,1 Plan (1%) SPDA2 8,7,6,5,4,3, Base Plan 2,1 3.0% SPDA2 Bonus 9,8,7,6,5,4, Plan (1%) 3,2,1 FPDA1 7,6,5,4,3, Base Plan 2,1 FPDA1 Bonus 8,7,6,5,4, Plan (1%) 3,2,1 FPDA2 10,9,8,7,6, Base Plan 5,4,3,2,1 FPDA2 12,11,10,9, Bonus 8,7,6,5,4,3, Plan (1%) 2,1 3 None None $10,000-NQ $2,000-Q $5,000-NQ $2,000-Q $100/mo-NQ $25/mo-Q $50/mo-NQ $25/mo-Q 3% First Year Interest Rate Bonus After first year: Safe 10,10,9,8, may withdraw up to 10% Choice II 7,6,5,4,2,0 of accumulation value, no Surrender Charge surrender charge. Waiver Rider (optional) During first policy year: interest-only withdrawals up to 10% of accumulation value, must be systematic, no surrender charge. After first year: may withdraw up to 10% of accumulation value, no surrender charge. During first policy year: interest-only withdrawals up to 10% of accumulation value, must be systematic, no surrender charge. After first year: may withdraw up to 10% of accumulation value, no surrender charge. 3.0% During first policy year: interest-only withdrawals up to 10% of accumulation value, must be systematic, no surrender charge. None After first year: may withdraw up to 10% of accumulation value, no surrender charge. 3.0% During first policy year: interest-only withdrawals up to 10% of accumulation value, must be systematic, no surrender charge. None After first year: may withdraw up to 10% of accumulation value, no surrender charge. Guaranteed Return of Premium Surrender Charge Waiver Rider (optional) Surrender Charge Waiver Rider (optional) Guaranteed Return of Premium Surrender Charge Waiver Rider (optional) Surrender Charge Waiver Rider (optional) Surrender Charge Waiver Rider Form AR /95 NOTES: All Shenandoah Life annuities have a one year current interest rate guarantee and no loads, fees, or administrative charges, except state premium tax where applicable. Except in Pennsylvania, Shenandoah Life reserves the right to charge a fee of not more than $25 for multiple withdrawal requests during a policy year. Safe Choice I and Safe Choice II, SPDA1, SPDA2 and FPDA1 issue ages are 0-85, nonqualified and qualified. FPDA2 issue ages are 0-56, nonqualified and qualified. Surrender Charge Waiver Rider issue ages are 0-75 except with FPDA2. LIMITATIONS: Benefits payable may be reduced if the annuitant s age or sex is misstated on the application. The company may contest the validity of a policy for two years from its policy date.

6 Safe Choice Annuities Safe Choice I Issue age 0-85 Minimum premium $2,000 Qualified $5,000 Nonqualified Maximum premium Annuity applications with premiums higher than $250,000 must be reviewed by a Marketing Department officer and approved prior to submission. Any application over $250,000 submitted without prior home office approval will be withdrawn or amended. Interest rate guarantee 3% guaranteed. Current rate is determined by the company and is guaranteed for the first full year. Bonus version 1% guaranteed first-year bonus version is available. (The bonus version carries a higher surrender charge than the nonbonus* version.) Surrender charges Policy Year Nonbonus* 8% 7% 6% 5% 4% 3% 2% 1% 0% 0 % Bonus 9% 8% 7% 6% 5% 4% 3% 2% 1% 0% Death benefit The death benefit payable upon death of the annuitant is the greater of: The accumulation value; and Premium paid less any partial withdrawals (including any surrender charge) Form numbers A N, Q, NN, NB, QN, QB - 5/98 Product Highlights: Safe Choice I is a single premium deferred annuity. Return of Premium Guarantee - Safe Choice I features a Return of Premium Guarantee. Your clients will always receive the full amount of premium paid, less any withdrawals taken from the account. 3% minimum interest rate applies to product, regardless of market fluctuations. The current interest rate, usually higher, is guaranteed for one year, and may increase or decrease but will never be less than the guaranteed rate. Safe Choice I may be used to fund an IRA or a Roth IRA. Withdrawal Options: During the first policy year, clients may withdraw interest up to 10% of the accumulation value free of surrender charge, provided the withdrawal is systematic. After the first policy year, clients may withdraw up to 10% of the accumulation value as determined at the beginning of the policy year with no surrender charges. These withdrawals are taxable if the client hasn t attained the age of 59 1 /2 and could be subject to tax penalty. Minimum withdrawal is $100, and minimum accumulation value after withdrawal must be $500. Surrender Charge Waiver Rider (Form AR /95) available at issue. Clients may withdraw all or part of annuity after the first policy year if they have had a qualifying, medically necessary stay in a hospital or nursing facility. The rider is available for issue to annuitants who are 75 or younger at time of policy issue. Safe Choice II Issue age 0-85 Minimum premium $2,000 Qualified $5,000 Nonqualified Maximum premium Annuity applications with premiums higher than $250,000 must be reviewed by a Marketing Department officer and approved prior to submission. Any application over $250,000 submitted without prior home office approval will be withdrawn or amended. Interest rate guarantee 3% guaranteed. Current rate is determined by the company and is guaranteed for the first full year. Surrender charges Policy Year % 10% 9% 8% 7% 6% 5% 4% 2% 0 % Death benefit The death benefit payable upon death of the annuitant is the accumulation value. Form numbers A-3010-N-1/03, A-3010-Q-1/03 Product Highlights: Safe Choice II is a single premium deferred annuity. Bonus Interest Rate - A 3% guaranteed first-year bonus applies to all Safe Choice II policies. 3% minimum interest rate applies to products, regardless of market fluctuations. The current interest rate, usually higher, is guaranteed for one year, and may increase or decrease but will never be less than the guaranteed rate. Safe Choice II may be used to fund an IRA or a Roth IRA. Withdrawal Options: During the first policy year, clients may withdraw interest up to 10% of the accumulation value free of surrender charge, provided the withdrawal is systematic. After the first policy year, clients may withdraw up to 10% of the accumulation value as determined at the beginning of the policy year with no surrender charges. These withdrawals are taxable if the client hasn t attained the age of 59 1 /2 and could be subject to tax penalty. Minimum withdrawal is $100, and minimum accumulation value after withdrawal must be $500. Surrender Charge Waiver Rider (Form AR /95) available at issue. Clients may withdraw all or part of annuity after the first policy year if they have had a qualifying, medically necessary stay in a hospital or nursing facility. The rider is available for issue to annuitants who are 75 or younger at time of policy issue. *Nonbonus version not available in Pennsylvania. 4

7 Shenandoah Series Annuity Portfolio * Single Premium Immediate Annuity, SPIA (Policy Forms #425-3/82 & 426-7/84) Payments can begin as early as one month from date single premium is received. Minimum modal payout is $100. Two payment options: The lifetime income option can be set up as a straight life annuity, a joint and survivor annuity, or a certain period. (Proof of date of birth is required for the lifetime income option.) The fixed period option will provide a specified number of payments. Single Premium Deferred Annuity, SPDA1 (Policy Forms #A-3003-N, A-3003-Q-6/95) Features liquidity through a five or six year surrender period. Interest earnings are tax-deferred. Available on a qualified and nonqualified basis. Available with or without a first-year bonus interest rate (bonus version has higher surrender charge and lower commission than nonbonus version). Interest rate during the first policy year is guaranteed not to drop below the rate effective at contract issue. Cash surrender value is guaranteed never to be less than premium paid, minus amounts received through withdrawals, loans, and applicable federal tax withholding. Issue age 0-85 (age last birthday). Minimum premium $2,000 for qualified annuities, $10,000 for nonqualified annuities. Maximum premium Annuity applications with premiums higher than $250,000 must be reviewed by a Marketing Department officer and approved prior to submission. Any application over $250,000 submitted without prior home office approval will be returned. Interest rate Guaranteed to be at least 3%, current interest rate will be determined by the company. Current rate will be guaranteed for one year from policy issue. Bonus version Equals 1%. Payable the first year only and guaranteed for that year. Withdrawal provisions The owner of this annuity may withdraw, with no surrender charges, up to 10% of the accumulation value as determined at the beginning of the policy year. Withdrawals may occur at any time during the policy year. The minimum accumulation value that must remain after withdrawal is $500. The minimum withdrawal amount is $100. Tax consequences may result from withdrawals before age 59 1 /2. Surrender charges Policy Year Nonbonus 5% 4% 3% 2% 1% 0% 0% Bonus 6% 5% 4% 3% 2% 1% 0% There are no surrender charges assessed upon the death of the annuitant. Surrender Charge Waiver Rider (Form AR /95) Available only at issue. Annuitant must be age 75 or younger at time of issue. After first policy year, surrender charges are waived on surrender or partial withdrawal after a qualifying, medically necessary stay of the annuitant in a hospital and/or nursing facility. *In New Jersey, only the SPIA (Policy Forms 425-3/82 & 426-7/84) is available. The Surrender Charge Waiver Rider (AR /95) is not available in PA or TX. Policy Forms 425-3/82 & 426-7/84 are not available in FL. Policy Form 426-7/84 is not available in MD. 5

8 The annuitant must be confined for at least 90 consecutive days immediately prior to the day the request for withdrawal or surrender is made, and submit written proof satisfactory to the company that all conditions are met. Single Premium Deferred Annuity, SPDA2 (Policy Form #A-3004-N, A-3004-Q-6/95) Interest earnings are tax-deferred. Available on a qualified and non-qualified basis. Available with or without a first-year bonus interest rate (bonus version has a higher surrender charge and lower commission than non-bonus version). Interest rate during the first policy year is guaranteed not to drop below the rate effective at contract issue. Issue age 0-85 (age last birthday). Minimum premium $2,000 for qualified annuities, $5,000 for non-qualified annuities. Maximum premium Annuity applications with premiums higher than $250,000 must be reviewed by a Marketing Department officer and approved prior to submission. Any application over $250,000 submitted without prior home office approval will be returned. Interest rate Guaranteed to be at least 3.0%, current interest rate will be determined by the company. Current rate will be guaranteed for one year from issue. Bonus version Equals 1%. Payable the first year only and guaranteed for that year. Withdrawal provisions The owner of this annuity may withdraw, with no surrender charges, up to 10% of the accumulation value as determined at the beginning of the policy year. See SPDA1 for details on withdrawal provisions. Surrender charges Policy Year Nonbonus 8% 7% 6% 5% 4% 3% 2% 1% 0% 0% Bonus 9% 8% 7% 6% 5% 4% 3% 2% 1% 0% There are no surrender charges assessed upon the death of the annuitant. Surrender Charge Waiver Rider (Form AR /95) Available only at issue. Annuitant must be age 75 or younger at time of issue. After first policy year, surrender charges are waived on surrender or partial withdrawal after a qualifying, medically necessary stay of the annuitant in a hospital and/or nursing facility. The annuitant must be confined for at least 90 consecutive days immediately prior to the day the request for withdrawal or surrender is made, and submit written proof satisfactory to the company that all conditions are met. Flexible Premium Deferred Annuity, FPDA1 (Policy Form #A-3005-N, A-3005-Q-6/95) Features liquidity through a seven or eight year surrender period. Interest earnings are tax-deferred. Available on a qualified and nonqualified basis. Available with or without a first-year bonus interest rate (the bonus version has a higher surrender charge than the non-bonus version). Interest rate during the first policy year is guaranteed not to drop below the rate effective at contract issue. Cash surrender value is guaranteed never to be less than premiums paid, minus amounts received through withdrawals, loans and applicable federal tax withholdings. Issue age 0-85 (age last birthday). Minimum premium $25 per month qualified annuities, $100 per month non-qualified annuities. Maximum premium Annuity applications with premiums higher than $250,000 must be reviewed by a Marketing Department officer and approved prior to submission. Any application over $250,000 submitted without prior home office approval will be returned. 6

9 Interest rate Guaranteed to be at least 3.0%, current interest rate will be determined by the company. Current rate will be guaranteed for one year from issue. Bonus version Equals 1%. Payable the first year only and guaranteed for that year. Withdrawal provisions The owner of this annuity may withdraw, with no surrender charges, up to 10% of the accumulation value as determined at the beginning of the policy year with no surrender charges. See SPDA1 for details on withdrawal provisions. Surrender charges Policy Year Nonbonus 7% 6% 5% 4% 3% 2% 1% 0% 0% Bonus 8% 7% 6% 5% 4% 3% 2% 1% 0% There are no surrender charges assessed upon the death of the annuitant. Surrender Charge Waiver Rider (Form AR /95) Available only at issue. Annuitant must be age 75 or younger at time of issue. After first policy year, surrender charges are waived on surrender or partial withdrawal after a qualifying, medically necessary stay of the annuitant in a hospital and/or nursing facility. The annuitant must be confined for at least 90 consecutive days, immediately prior to the day the request for withdrawal or surrender is made, and submit written proof satisfactory to the company that all conditions are met. Flexible Premium Deferred Annuity, FPDA2 (Policy Forms #A-3006-N, A-3006-Q-6/95) Interest earnings are tax-deferred. Available on a qualified and nonqualified basis. Available with or without a first-year bonus interest rate (bonus version has a higher surrender charge and lower commission than the nonbonus version). Interest rate during the first policy year is guaranteed not to drop below the rate effective at contract issue. Issue age 0-56 (age last birthday). Minimum premium $25 per month qualified annuities, $50 per month nonqualified annuities. Maximum premium Annuity applications with premiums higher than $250,000 must be reviewed by a Marketing Department officer and approved prior to submission. Any application over $250,000 submitted without prior home office approval will be returned. Interest rate Guaranteed to be at least 3.0%, current interest rate will be determined by the company. Current rate will be guaranteed for one year from issue. Bonus version Equals 1%. Payable the first year only and guaranteed for that year. Withdrawal provisions The owner of this annuity may withdraw, with no surrender charges, up to 10% of the accumulation value as determined at the beginning of the policy year. See SPDA1 for details on withdrawal provisions. Surrender charges Policy Year Nonbonus 10% 9% 8% 7% 6% 5% 4% 3% 2% 1% 0% 0% 0% Bonus 12% 11% 10% 9% 8% 7% 6% 5% 4% 3% 2% 1% 0% There are no surrender charges assessed upon the death of the annuitant. Surrender Charge Waiver Rider (Form AR /95) Available only at issue. Annuitant must be age 56 or younger at time of issue. After first policy year, surrender charges are waived on surrender or partial withdrawal after a qualifying, medically necessary stay of the annuitant in a hospital and/or nursing facility. The annuitant must be confined for at least 90 consecutive days immediately prior to the day the request for withdrawal or surrender is made, and submit written proof satisfactory to the company that all conditions are met. 7

10 IRAs, SEPs and Keogh Our annuities may also be used as Individual Retirement Annuities (IRAs), Simplified Employee Pensions (SEPs), and Keogh Retirement Annuities. Be sure to check StarNet for availability of these products in your state. For interest rates, withdrawal provisions, surrender charges and issue ages for each of these annuities, please refer to the appropriate annuity referenced on previous pages SPDA1, SPDA2, FPDA1 or FPDA2. Individual Retirement Annuities SPDA1 Single Premium Individual Retirement Annuity (IRA, Roth IRA, Roth Conversion IRA) (Policy Forms #A-3003-Q, A-3003-QR in TX) The Shenandoah Series SPDA1 can be sold as a Single Premium IRA or Single Premium Roth IRA. IRAs: Interest earnings are tax-deferred. Anyone earning an income or the spouse of someone earning an income may purchase an IRA. Tax deductibility of IRA contributions is limited by income level and contributions to other retirement plans, and age. This product is available for receiving previously accumulated IRA and/or qualified retirement funds as a rollover into an IRA. Minimum premium $2,000 Minimum distribution Minimum distributions are required annually after age 70 1 /2 for IRAs. Minimum distributions in excess of the 10% withdrawal are subject to the applicable surrender charges. In a rollover situation, any distributions required to be made in the first contract year should be made prior to the rollover. Maximum deductible limits Annually the lesser of: $3,000 per person under age 70 1 /2, per contract for 2002; or annual earned income or compensation. For ages 50 and over, a catch-up contribution is allowed, increasing the maximum amount. See table below for current and future limits: pre-50 age :...$3,000 $3, :...$4,000 $4, :...$4,000 $5, Beyond:...$5,000 $6,000 8 Roth IRAs: Interest earnings on the Roth IRA are non taxable subject to certain IRS distribution restrictions. Subject to IRS income limits, anyone earning an income or the spouse of someone earning an income may purchase a Roth IRA. Roth IRA contributions are not tax-deductible. This product is available for receiving previously accumulated IRA and/or qualified retirement funds as a rollover into a Roth IRA. Contributions are limited to a maximum of $3,000 for 2002, subject to IRS restrictions on adjustable gross income. For ages 50 and over, a catch-up contribution is allowed, increasing the maximum amount. See table below for current and future limits: :...$3,000 $3, :...$4,000 $4, :...$4,000 $5, Beyond:...$5,000 $6,000 Minimum premium $2,000 pre-50 age 50+ Minimum distribution No minimum distributions are required for Roth IRAs. Maximum deductible limits Roth IRAs are nondeductible. SPDA2 Single Premium Individual Retirement Annuity (IRA, Roth IRA, Roth Conversion IRA) (Policy Forms #A-3004-Q, A-3004-QR in TX) The Shenandoah Series SPDA 2 can be sold as a Single Premium IRA or Single Premium Roth IRA. IRAs: Interest earnings are tax-deferred. Anyone earning an income or the spouse of someone earning an income may purchase an IRA. Tax deductibility of IRA contributions is limited by income level and contributions to other retirement plans, and age. This product is available for receiving previously accumulated IRA and/or qualified retirement funds as a rollover into an IRA.

11 Minimum premium $2,000 Minimum distribution Minimum distributions are required annually after age 70 1 /2 for IRAs. Minimum distributions in excess of the 10% withdrawal are subject to the applicable surrender charges. Any distributions required to be made in the first contract year should be made prior to policy issue. Maximum deductible limits Annually the lesser of: $3,000 per person under age 70 1 /2, per contract for 2002; or annual earned income or compensation. For ages 50 and over, a catch-up contribution is allowed, increasing the maximum amount. See table below for current and future limits: pre-50 age :...$3,000 $3, :...$4,000 $4, :...$4,000 $5, Beyond:...$5,000 $6,000 Roth IRAs: Interest earnings on the Roth IRA are nontaxable subject to certain distribution restrictions. Subject to IRS income limits, anyone earning an income or the spouse of someone earning an income may purchase a Roth IRA. Roth IRA contributions are not tax deductible. This product is available for receiving previously accumulated IRA and/or qualified retirement funds as a rollover into a Roth IRA. Contributions are limited to a maximum of $3,000 for 2002, subject to IRS restrictions on adjustable gross income. For ages 50 and over, a catch-up contribution is allowed, increasing the maximum amount. See table below for current and future limits: pre-50 age :...$3,000 $3, :...$4,000 $4, :...$4,000 $5, Beyond:...$5,000 $6,000 Minimum premium $2,000 Minimum distribution No minimum distributions are required for Roth IRAs. Maximum deductible limits Roth IRAs are nondeductible. FPDA1 Flexible Premium Individual Retirement Annuity (IRA, Roth IRA, Roth Conversion IRA) (Policy Forms #A-3005-Q, A-3005-QR in TX) The Shenandoah Series FPDA 1 can be sold as a Flexible Premium IRA or Flexible Premium Roth IRA. IRAs: Interest earnings are tax-deferred. Anyone earning an income or the spouse of someone earning an income may purchase an IRA. Tax deductibility of IRA contributions is limited by income level and contributions to other retirement plans, and age. This product is available for receiving previously accumulated IRA and/or qualified retirement funds as a rollover into an IRA. Minimum premium $25 per month Minimum distribution Minimum distributions are required annually after age 70 1 /2 for IRAs. Minimum distributions in excess of the 10% withdrawal are subject to applicable surrender charges. Any distributions required to be made in the first contract year should be made prior to policy issue. Maximum deductible limits Annually the lesser of: $3,000 per person under age 70 1 /2, per contract for 2002; or annual earned income or compensation. For ages 50 and over, a catch-up contribution is allowed, increasing the maximum amount. See table below for current and future limits: pre-50 age :...$3,000 $3, :...$4,000 $4, :...$4,000 $5, Beyond:...$5,000 $6,000 Roth IRAs: Interest earnings on the Roth IRA are nontaxable subject to certain distribution restrictions. Subject to IRS income limits, anyone earning an income or the spouse of someone earning an income may purchase a Roth IRA. Roth IRA contributions are not tax deductible. This product is available for receiving previously accumulated IRA and/or qualified retirement funds as a rollover into a Roth IRA. Contributions are limited to a maximum of $3,000 for 2002, subject to IRS restrictions on adjustable gross income. For ages 50 and over, a catch-up contribution is allowed, increasing the maximum amount. See table below for current and future limits: pre-50 age :...$3,000 $3, :...$4,000 $4, :...$4,000 $5, Beyond:...$5,000 $6,000 9

12 Minimum premium $25 per month Minimum distribution No minimum distributions are required for Roth IRAs. Maximum deductible limits Roth IRAs are nondeductible. FPDA2 Flexible Premium Individual Retirement Annuity (IRA, Roth IRA) (Policy Forms #A-3006-Q, A-3006-QR in TX) The Shenandoah Series FPDA 2 can be sold as a Flexible Premium IRA or Flexible Premium Roth IRA. IRAs: Interest earnings are tax-deferred. Anyone earning an income or the spouse of someone earning an income may purchase an IRA. Tax deductibility of IRA contributions is limited by income level and contributions to other retirement plans, and age. This product is available for receiving previously accumulated IRA and/or qualified retirement funds as a rollover into an IRA. Minimum premium $25 per month Minimum distribution Minimum distributions are required annually after age 70 1 /2 for IRAs. Minimum distributions in excess of the 10% withdrawal are subject to applicable surrender charges. Any distributions required to be made in the first contract year should be made prior to policy issue. Maximum deductible limits Annually the lesser of: $3,000 per person under age 70 1 /2, per contract for 2002; or annual earned income or compensation. For ages 50 and over, a catch-up contribution is allowed, increasing the maximum amount. See table below for current and future limits: pre-50 age :...$3,000 $3, :...$4,000 $4, :...$4,000 $5, Beyond:...$5,000 $6,000 Roth IRAs: Interest earnings on the Roth IRA are nontaxable subject to certain distribution restrictions. Subject to IRS limits, anyone earning an income or the spouse of someone earning an income may purchase a Roth IRA. Roth IRA contributions are not tax deductible. This product is available for receiving previously accumulated IRA and/or qualified retirement funds as a rollover into a Roth IRA. Contributions are limited to a maximum of $3,000 for 2002, subject to IRS restrictions on adjustable gross income. For ages 50 and over, a catch-up contribution is allowed, increasing the maximum amount. See table below for current and future limits: :...$3,000 $3, :...$4,000 $4, :...$4,000 $5, Beyond:...$5,000 $6,000 Minimum premium $25 per month Minimum distribution No minimum distributions are required for Roth IRAs. Maximum deductible limits Roth IRAs are nondeductible. Simplified Employee Pension (SEP) Annuities SPDA1 Single Premium Simplified Employee Pension (SEP) (Policy Form #A-3003-Q) SPDA2 Single Premium Simplified Employee Pension (SEP) (Policy Form #A-3004-Q) The Shenandoah Series SPDA1 and SPDA2 Single Premium SEPs are annuities that are purchased with one premium. Any employer is eligible to establish a SEP, which can be funded by an individual IRA purchased for each employee by the employer. Minimum premium $2,000 pre-50 age 50+ FPDA1 Flexible Premium Simplified Employee Pension (SEP) (Policy Form #A-3005-Q) FPDA2 Flexible Premium Simplified Employee Pension (SEP) (Policy Form #A-3006-Q) The Shenandoah Series FPDA1 and FPDA2 Flexible Premium SEPs are annuities that offer accumulation of retirement earnings which are tax-deferred. 10

13 Any employer is eligible to establish a SEP, which can be funded by an individual IRA purchased for each employee by the employer. There is no limit to the number or timing of these deposits up to the maximum limits. Minimum premium $25 per month Keogh Retirement Annuities SPDA1 Single Premium HR-10 Keogh Retirement Annuity (Policy Form #A-3003-Q) SPDA2 Single Premium HR-10 Keogh Retirement Annuity (Policy Form #A-3004-Q) The Shenandoah Series SPDA1 and SPDA2 Single Premium HR-10s are annuities that can be purchased with one premium. Only self-employed individuals are eligible to establish HR-10s. Minimum Premium: $2,000 FPDA1 Flexible Premium HR-10 Keogh Retirement Annuity (Policy Form #A-3005-Q) FPDA2 Flexible Premium HR-10 Keogh Retirement Annuity (Policy Form #A-3006-Q) The Shenandoah Series FPDA1 and FPDA2 Flexible Premium HR-10s are annuities that offer accumulation of retirement earnings. Only self-employed individuals are eligible to establish HR-10s. There is no limit to the number or timing of these deposits up to the maximum limits. Minimum premium $25 per month 11

14 General Questions: * Your client may have questions about which annuities are best for them. To assist you in addressing your client s concerns, here are some commonly asked annuity questions and answers: How does the tax-deferred feature of an annuity work? Interest earned in an annuity is tax-deferred, so your client won t pay taxes on his interest until he begins withdrawing from the contract. There are restrictions on his ability to withdraw the earnings before age 59 1 /2. However, the power of taxdeferred interest can benefit your client. For example, let s say he makes an initial deposit of $50,000, the interest credited is 5%, and he is in a 30% tax bracket. After 20 years, the value in the investment after tax would be $99,489. The accumulated value in the tax-deferred annuity would be $132,665, for an advantage of deferral of $33,176. For this example, the interest earned over the life of the annuity is $82,665 and taxes on that amount would equal $24,800, or 30%. When this is subtracted from the accumulation value of the annuity contract, which is $132,665, your client or his beneficiary would receive a net amount of $107,865. This is $8,376 more than is available after 20 years in the investment where interest earnings have been taxed all along. What about probate? Proceeds of an annuity, if any, are distributed directly to beneficiaries, avoiding the cost and delays of probate. Do annuities provide lifetime income? The Shenandoah Series payout options can provide income for the rest of your client s life. What are some sources of annuity premium? There are several, but some your client may be familiar with are pension accounts, savings accounts, money market funds, credit union accounts, savings bonds, mutual funds, common stocks, bonds, and life insurance cash values. How do I know which annuity is best for my client? There are several factors to consider in choosing an annuity. Your client should think about the premium if he can pay a single premium, or if he would rather spread the premium payments out. He should also consider the guaranteed rate, surrender charges, penalty fees for early withdrawal, fees/loads, minimum premium required, and special features. Of course, each case needs to be considered on an individual basis, and you can help your client choose the annuity that would work best for him. *This general information is intended to be accurate based on Shenandoah Life s understanding and interpretation of current tax laws, which are subject to change. For any particular situation in which legal advice or other expert assistance is required, the services of a competent professional should be sought. Shenandoah Life gives neither legal nor tax advice. 12

15 Individual Retirement Annuities (IRAs and Roth IRAs) 1Q: Who may deduct IRA contributions and how much can they deduct? 1A: The full deduction of contributions to traditional IRAs is allowed for: Individuals who are not active participants in a retirement program. Married couples filing a joint return if neither spouse is an active participant in a plan. Individuals who are active participants in a plan but earn less than $34,000* a year. Married couples filing jointly if one or both spouses are active participants in retirement plans, but they earn less than $54,000* annually. Married individuals filing a joint return whose combined income with spouse is less than $150,000, where only the spouse is an active participant. Some people covered under retirement plans can qualify for partial deductions. Individuals who earn between $34,000* and $44,000*, and married couples filing joint returns who earn between $54,000* and $64,000*, and married individuals filing a joint return whose combined income with spouse is between $150,000* and $160,000*, where only the spouse is an active participant annually will qualify for partial deductions. The amount of the deduction is reduced proportionately as income increases. The maximum deductible IRA contribution for 2002 tax year is the lesser of 100% of compensation or $3,000. For ages 50 and over, a catch-up contribution is allowed, increasing the maximum amount. See table below for current and future limits: pre-50 age :...$3,000 $3, :...$4,000 $4, :...$4,000 $5, Beyond:...$5,000 $6,000 Contributions to a Roth IRA are not deductible. 2Q: Can someone own a Roth IRA if they don t qualify for IRA contributions? 2A: Anyone earning an income or the spouse of someone earning an income may purchase a Roth IRA, subject to the following contribution limits and restrictions: Contributions to a Roth IRA are limited to a maximum of $3,000 per year subject to IRS restrictions on adjustable gross income. 13 An individual and spouse may contribute up to $3,000 to their own IRA (total $6,000) beginning in 2002, as long as their combined adjusted gross income is at least that amount. See table below for current and future limits: :...$3, :...$4, Beyond:...$5,000 There is a contribution phaseout based on adjusted gross income. Contribution limits for a Roth IRA are coordinated with those of a traditional IRA; a taxpayer may not contribute more than $3,000 ($6,000 for a married couple) per year into a single IRA or a combination of traditional and Roth IRAs. See table below for current and future limits: :...$3, :...$4, Beyond:...$5,000 Excess contributions to a Roth IRA are subject to a 6 percent excise tax for each year that any excess remains in the account. 3Q: What are the distribution rules for an annuity IRA? 3A: If an individual makes only deductible contributions to an IRA, his basis in the contract will be zero. All distributions will be fully taxed when received. Distributions from nondeductible contributions will be considered nontaxable return of basis. If an individual has made both deductible and nondeductible contributions to an IRA, a portion of the amount withdrawn will be nontaxable. To determine how much is nontaxable, figure the ratio of total nondeductible contributions to the total balance of the IRA. That percentage of the withdrawal amount is nontaxable. If the individual does not provide this information on his tax return, the IRS will consider distributions from an IRA to come first from deductible contributions and earnings, and so be fully taxable. Distributions from any IRA may be taken after age 59 1 /2 without a penalty tax (but subject to regular income tax); however, distributions must begin no later than April 1 of the year after the IRA owner reaches age 70 1 /2. A penalty tax of 10% *Amounts are for the 2002 taxable year only. For other tax years consult IRC section 219 (g) (3) (B).

16 is imposed upon early distributions except in the case of death or disability. Distributions from an annuity must be taken at a rate which will deplete the balance of the account over the expected life of the owner, or the expected lives of the owner and the designated beneficiary. 4Q: What are the distribution rules for a Roth IRA? 4A: Roth IRAs are not subject to the mandatory distribution requirements during the life of the owner (triggered at age 70 1 /2), which apply to traditional IRAs. 5Q: How many IRA to IRA rollovers are allowed per 12-month period? 5A: One IRA rollover per 12-month period can be made from each IRA a person owns. When an IRA rollover is transacted, the funds are received by the individual before being moved into the new account. This distinguishes a rollover from a transfer. 6Q: In an IRA to IRA rollover, must the entire account balance be rolled? 6A: No. Part or all of the account balance may be rolled with no tax consequences as long as the rollover is completed within 60 days of receipt of the distribution. 7Q: Can an IRA be converted to a Roth IRA? 7A: An existing traditional IRA can be converted to a Roth IRA. The conversion results in a taxable event; previously deducted IRA contributions and all earnings in the account are added to the taxpayer s gross income for the year of conversion. Any 10% excise tax (penalty for withdrawals made prior to age 59 1 /2) which might apply to converted amounts is waived. However, if a taxpayer withdraws amounts from the converted Roth IRA within five years of the year of conversion, the 10 % excise tax will apply. 8Q: How do you calculate the maximum IRA deduction if you are in the partial deduction category described in question #1?* 8A: If you file as: Enter on line 1: Single or head of household $44,000 Married: joint return or qualifying widow(er) $64,000 Married: joint return where individual is not an active participant but the spouse is $160,000 Married: separate return $10, Amount from above $ 2. Adjusted gross income $ 3. Subtract line 2 from line 1 $ 4. Maximum partial deduction: multiply line 3 by 30%. If the result is not a multiple of $10, round it to the next highest multiple of $10. If the result is less than $200 but more than zero, enter $200. $ The figure on line 2 is your adjusted gross income before you take your IRA deduction. *Amounts are for the 2002 taxable year only. For other tax years consult IRC section 219 (g) (3) (B). 14

17 9Q: What is the advantage of an annuity over an IRA? 9A: An IRA will pay out the balance of the account over the life expectancy of the owner from the time distributions begin. If a person outlives his life expectancy, he also outlives his IRA distributions. With an annuity, payments can be structured at a level to guarantee that a person never outlives his payments. Distributions, though, will probably be less. 10Q: Can an owner borrow from an annuity IRA? 10A: If the owner borrows from an annuity IRA, the contract ceases to be an IRA. This disqualifies the IRA for the entire year, and the owner must include the fair market value of the whole contract in his income for the year. 11Q: What happens when an IRA is transferred to an annuity? 11A: An individual can transfer money from an IRA to a new annuity IRA at any time of the year, subject to possible early withdrawal charges, and as often as he wishes. The individual does not receive the funds. They go directly to the new account, so there are no negative tax implications or IRS penalties. 12Q: Will income tax be withheld from IRA distributions? 12A: Income tax will be withheld from periodic IRA distributions unless the owner elects against witholding. Regular income tax rates apply to annuity IRA distributions. It is the payor s responsibility to withhold sufficient tax from the distributions. It is the payor s responsibility to notify the owner of the withholding rules and to give the owner the chance to elect out of withholding. 13Q: What are the income tax consequences of Roth IRA distributions? 13A: Qualified distributions from a Roth IRA are not subject to federal income tax. Qualified distributions are those distributions which are made after a five-year waiting period, and which are made 1) after the taxpayer reaches age 59 1 /2, 2) in the event of taxpayer s death, 3) because the taxpayer becomes disabled, or 4) to pay for qualified first-time homebuyer expenses. Distributions which are not qualified are subject to tax. Amounts withdrawn are considered to come from nondeductible contributions, and are not subject to tax. After all original contributions have been withdrawn, remaining amounts are considered to be income earned within the Roth IRA and, if withdrawn, are taxable. If taxable distributions are received prior to age 59 1 /2, a 10% penalty tax may be added. 14Q: What is a spousal IRA and who may use it? 14A: A spousal IRA is used when one spouse is employed, the other does not work, and they file a joint return. The working spouse can set up a spousal IRA for the non-working spouse. The maximum amount which may be deposited in a spousal IRA for the tax year is set by the IRS. A spouse with minimal income can be treated as having no income for purposes of the spousal IRA. Otherwise, if both spouses work, they must establish two regular IRAs if eligible. A spousal IRA is usually maintained in a separate account. The maximum deposit may be divided between the accounts in any way. 15Q: What are the tax consequences associated with a premature withdrawal from an IRA? 15A: Withdrawals made before age 59 1 /2 are subject to a 10% penalty tax. However, there are exceptions to this rule. Distributions which are part of a scheduled series of substantially equal periodic payments over the life of the owner, his life expectancy, or the joint lives of the owner and his beneficiary are excepted, as are distributions made after the owner s death, or during his disability. 15

18 Non-Qualified Product Questions 1Q: How are partial withdrawals from an annuity taxed? 1A: Partial withdrawals from single premium deferred annuities entered into before August 14, 1982, are only included in gross income to the extent they exceed the investment in the contract, or, in general, total premiums paid. These amounts are treated as a distribution of principle first and interest second. Partial withdrawals from both single premium and flexible premium deferred annuities entered into after August 13, 1982, are included in gross income to the extent that cash values exceed premiums paid. These amounts are treated as distribution of interest first and as recovery of cost second. Partial withdrawals from flexible premium deferred annuities entered into before August 14, 1982, will be taxed as under the first bullet above except when additional premiums are paid after August 13, In such cases, partial surrenders are taxed in the following order: 1. First return of pre-august, 1982 premium. 2. If any amount remains, interest on pre- August 14, 1982 premium. 3. If any amount remains, interest on post- August 13, 1982 premium. 4. If any amount remains, return of post- August 13, 1982 premium. Example: You have a flexible premium deferred annuity issued before August 14, l982, and paid a $5,000 premium at issue. Assume no surrender charges and a 10% crediting rate for 1982, 1983, and On January 1, 1984, the contract has a cash value of $6,050. Another premium payment of $3,000 is made. On January 1, 1985, the contract has a cash value of $9,955. You withdraw $7,050. Total cash value $9,955 Cash value attributed to pre-august 14, 1982 premium...6,655 Cash value attributed to post-august 13, 1982 premium...3,300 Your withdrawal is dissected this way for tax purposes: $5,000...return of pre-august 14, 1982 premium $1,655...interest on pre-august 14, 1982 premium $ interest on post-august 13, 1982 premium $ 95...return of post-august 13, 1982 premium Interest of $1,955 would be included in gross income. 2Q: What tax penalties apply when early distributions are made from an annuity? 2A: All annuity distributions in tax years beginning after December 31, l986, are subject to a tax penalty equal to 10% of the amount of the distribution includible in the taxpayer s gross income, unless one of the following exceptions apply: 16

19 Taxpayer is 59 1 /2 or older. Distribution is made because of owner s death. Disability of taxpayer. Distribution is allocable to earnings on a pre- August 14, 1982, premium. Distribution is paid in substantially equal payments over the life or life expectancy of the taxpayer or the taxpayer and his designated beneficiary. Annuity was purchased between August 14, 1982, and January 18, 1985, and the contributions attributed to the distribution were in the annuity at least ten years. 3Q: How are distributions handled if the owner dies? 3A: Annuity contracts issued before January 19, 1985, do not require a distribution upon the owner s death. The cash value in excess of premiums paid and not yet recovered will be taxed when distributed from the contract. Annuity contracts issued after January 18, l985, must provide specific distribution provisions. If the annuity owner dies on or after the annuity starting date, the balance of the fund must be distributed at least as fast as the method being used by the owner at his death. If the annuity owner dies before the annuity starting date, the entire interest in the contract must be distributed within five years after the owner s death, or the fund must be annuitized within one year. The exception to this rule occurs when the owner has not begun taking distributions and the beneficiary is the owner s spouse. The contract can be continued in the name of the spouse as owner. This will prolong the deferral of income taxation. If there are joint owners, these distribution rules apply to the first death. This particular rule applies to contracts issued after April 22, Q: How is an annuity taxed upon annuitization? 4A: When an annuity option is selected under the contract, such as life and 10 years certain, a portion of each payment received is return of premium and part is interest includible in gross income until the total basis has been recovered. Then the entire amount of each payment is includible in gross income. If death occurs before the entire investment in the contract is recovered and no provisions have been made for payment to a beneficiary, an income tax loss deduction is allowed for the unrecovered investment. 5Q: What are the tax ramifications of gifting an annuity to another? 5A: If an owner gifts the annuity to someone else, he is taxed as if the annuity had been surrendered. Cash value in excess of investment in the contract is included in gross income. This rule applies to contracts issued after April 22, l987. Owners of annuities issued prior to April 23, l987, can gift the annuity without suffering current income tax consequences. 6Q: When annuities are owned by a company, how are they taxed? 6A: An annuity owned by a non-natural person, such as a corporation, receives a different tax treatment. Generally, the interest earned on annuity contributions after February 28, 1986, is included in gross income in the tax year earned. The rule would not apply to a trust which holds the annuity on behalf of a natural person. Other exceptions to the rule include: Annuity held by the estate of a decedent by reason of death. Annuity held as a qualified retirement vehicle under Section 401, 403, or 408. Annuity held as an immediate annuity. 17

20 7Q: When does an annuity qualify for a 1035 exchange? 7A: An annuity can be exchanged for another annuity under Section 1035 if the contracts are payable to the same person, but it cannot be exchanged for a life insurance contract or endowment contract exchanges must be for the full account value to avoid a taxable event. If an annuity subject to the rules under Question #1 is exchanged under Section 1035, the rules of Question #1 continue to apply to the new annuity. Any annuity issued prior to January 19, 1985, which is exchanged under Section 1035 will become subject to the distribution-at-death rules described in the second paragraph of the answer in Question #3. 9Q: What is an annuity starting date? 9A: An annuity starting date is the first day of the first period for which payments are made from the contract. 10Q: Are the death proceeds of an annuity income tax free? 10A: No. Value in excess of the investment in the contract is taxable. Tax deferral in the annuity can continue when the owner has not annuitized the contract and the beneficiary is the owner s spouse. The contract can be continued in the spouse s name as owner. This continues income tax-deferral for the beneficiary/spouse. 8Q: What are the tax consequences of an annuity loan or assignment? 8A: For contracts issued after August 14, l982, any loan, assignment or pledge of the annuity will be taxed either as a partial or complete surrender as outlined in Question #1. This general information is intended to be accurate based on Shenandoah Life s understanding and interpretation of current tax laws, which are subject to change. For any particular situation in which legal advice or other expert assistance is required, the services of a competent professional should be sought. Shenandoah Life gives neither legal nor tax advice. 18