What is an Annuity? ANNUITY BASICS. An Annuity is an insurance product that generally provides tax deferred growth for retirement.

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1 What is an Annuity? An Annuity is an insurance product that generally provides tax deferred growth for retirement. An Annuity can provide for guaranteed income through Annuitization or a Lifetime Income Benefit.

2 Benefits of an Annuity Tax Deferral Minimum Guarantees Liquidity Guaranteed Lifetime Income Preservation of Premium Possible Probate Avoidance

3 What does Tax Deferral mean? Under existing tax laws, any interest or gain in an annuity is not taxable until you begin to actually receive this income, i.e. the tax payable on the gain is deferred. Therefore since you pay no taxes while your money is compounding, you earn interest in three ways: interest on your principal, interest on your interest, and interest on the taxes you would have paid if it had not been tax deferred.

4 What is a Minimum Guarantee The Minimum Guaranteed Interest Rate (MGIR) is the lowest rate your client s annuity will earn. This rate is set at issue and applies to the Minimum Guaranteed Surrender Value only. American Equity Indexed Annuities have a MGIR used to calculate the Minimum Guarantee Surrender Value; and a Fixed Value MGIR for the current Fixed Value Rate.

5 Minimum Guarantee Example Retirement Gold (Index-2-09) + Minimum Guaranteed Surrender Value Assumptions: Initial Premium= $100,000 Premium Bonus**= 8% Current MGIR*= 1.5% Issue Ages = 0 78 Minimum Guaranteed Surrender Value for Retirement Gold: 87.5% of premiums paid, less withdrawal proceeds, at MGIR, compounded annually. + Form number and availability may vary by state *The MGIR is set at issue, applicable for MGSV only. **Each year after the 3rd Contract year, clients become vested in a percentage of the bonus, until 100% vested at the end of the 14th Contract year. Vested amounts of the bonus are the amounts not forfeited as a result of an early Withdrawal or Surrender. MGIR, Bonus, Surrender Charges, and Vesting Schedules may vary by state. See Disclosure and Brochure for Details.

6 Minimum Guaranteed Example cont Minimum Guaranteed Surrender Value for Retirement Gold End Year 1 = $88,813 ($100K * 87.5%= $87,500 * 1.5%= $1,313 + $87,500 = $88,813) End Year 2 = $90,145 ($88,813 * 1.5% = $1,332 + $88,813 = $90,145) End Year 3 = $91,497 ($90,145 * 1.5% = $1,352 + $90,145 = $91,497)

7 What is Liquidity? Withdrawals can be taken at any time (subject to applicable surrender charges) Many contracts allow for annual penalty-free withdrawals of up to 10% of the contract value, after the first contract anniversary Certain riders are also available which increase liquidity in the event of confinement to a nursing home or if diagnosed with a terminal illness (riders not available in all states, some restrictions apply)

8 Why is Guaranteed Income for Life a Benefit? Annuities are the only product which offers a guaranteed income for life. With annuitization, the insurance company calculates a guaranteed income payment based on your age and sex. That payment is guaranteed for as long as you live. Guaranteed Income can be provided by Annuitization or the Lifetime Income Benefit Rider (ICC13 R-LIBR.1)* *Form number and availability may vary by state

9 What is Annuitization? Annuitization means that you convert your Contract Value into a series of payments either for a period certain like 5 or 10 years, for a Life option, or for a Life and period certain. Once you annuitize the contract it is irrevocable and payments cannot be stopped.

10 What is the Lifetime Income Benefit Rider *? The Lifetime Income Benefit Rider allows you to take a lifetime income from your annuity without losing control of your retirement assets. This is possible because the lifetime income is in the form of regular automatic withdrawals from your Contract rather than annuitized payments. The amount of your Lifetime Income Benefit (LIB) is determined by multiplying your Income Account Value (IAV) by a benefit payout percentage based on your age at the time you elect payments. *Provided by ICC13 R-LIBR.1, form number and availability may vary by state.

11 Lifetime Income Benefit Rider cont. Your guaranteed LIB payments may also be stopped and restarted at your discretion. Please Note: The Lifetime Income Benefit Rider is not a part of your client s contract value or available in a lump sum. Optional Enhanced Death Benefit rider & Wellbeing rider available ** **Provided by 13 R-LIBR-EDB.1 or 13 R-LIBR-W.1 rider. Form number and availability may vary by state. Additional fees apply. Please consult the Marketing Department for specific LIBR information.

12 Preservation of Premium Fixed Annuities by their very nature are considered a safe money alternative. It is a contract between the client and the insurance company for guaranteed interest and guaranteed income options American Equity guarantees * your client s contract value will never decrease due to index volatility. *Guarantees based on financial strength and claims paying ability of American Equity.

13 Why is Probate Avoidance a Benefit? Another benefit common to all annuities is the ability to pass on the proceeds upon the death of the owner/annuitant directly to a named beneficiary. Probate is a judicial process to establish the validity of a will. Assets in an estate typically cannot be passed on to heirs until the probate court has established the validity of the will and authorized the executor to distribute them.

14 Probate Avoidance cont. Because probate is a judicial process, the process can be lengthy and legal expenses can be significant. If set up correctly, proceeds from annuities and life insurance, on the other hand, are not subject to probate and may be passed to the named beneficiary directly without going through probate.

15 Types of Annuities (Offered by American Equity) Traditional Fixed Annuity Fixed Indexed Annuity Single Premium Immediate Annuity

16 What is a Traditional Fixed Annuity An annuity that earns a competitive interest rate set by American Equity and is guaranteed for a specified period of time. A guaranteed minimum interest rate is set over the term of the contract. Taxes are not due until earnings are withdrawn.

17 What is a Fixed Indexed Annuity The interest earnings are determined based upon the growth in an accepted index, such as the S&P 500 Index. There are many different index crediting method choices, including calculating averages in index changes or simply calculating point-to-point changes in the index. An indexed annuity is an insurance contract. Your clients are not buying shares of any stock or index.

18 What are the Benefits of a Fixed Indexed Annuity? A major benefit of a Fixed Indexed Annuity is potentially higher interest rates based on increases of an external index(es), which historically have provided higher yields than fixed interest rate products.

19 What is an Immediate Annuity An Immediate Annuity is one where the benefit payments start no later than one year after the time it is purchased. The immediate annuity is usually purchased with a single premium.

20 Tax Status * Qualified Annuities Non-Qualified Annuities *Neither American Equity nor any of our representatives give tax advice. The information here is a summary of our understanding of current tax laws as they relate to this insurance product. Please consult your own personal advisor on specific points of importance to you.

21 What does Qualified mean? Qualified means the annuity is purchased using before tax dollars under one or more qualified plans defined by the Internal Revenue Code such as an IRA, SEP, TSA, 401K or other qualified pension plan. The phrase before tax dollars means that your contributions have been deducted from your taxable income, and thus no tax has been paid on this money. Contributions into one of the qualified plans are currently tax deductible, and taxes are generally payable on the full amount at the time the funds are distributed. *Neither American Equity nor any of our representatives give tax advice. The information here is a summary of our understanding of current tax laws as they relate to this insurance product. Please consult your own personal advisor on specific points of importance to you.

22 What does Non-Qualified mean? Non-Qualified means the annuity is purchased using after tax dollars, i.e. taxes have already been paid on the funds invested. In other words, these are funds you have earned and already paid income tax on. These funds are allowed to accumulate on a tax deferred basis. *Neither American Equity nor any of our representatives give tax advice. The information here is a summary of our understanding of current tax laws as they relate to this insurance product. Please consult your own personal advisor on specific points of importance to you.

23 How does a direct transfer work? A direct transfer would take place with any qualified plan (e.g. 401k, IRA), CD, or Mutual Fund. American Equity requires a Direct Custodial Transfer Form (form 4003) to request funds from the transferring company. This allows American Equity to move funds without requesting a direct check from the client. * PLEASE NOTE: The original company may require additional paperwork, please check with the client and/or transferring company regarding additional requirements.

24 What is a 1035 Exchange? A 1035 Exchange is required to move funds from one Non-Qualified Annuity to another while carrying over the tax-basis of the annuity. A client must fill out the 1035 Exchange Form (form 4003-a) for American Equity to send to the original Insurance Company. All 1035 Exchanges should be like to like; meaning the Annuitant and Owner on the original annuity must remain the same on the new annuity.

25 What are Surrender Charges? Surrender charges are deducted for withdrawals in the first year, withdrawals exceeding the penalty-free amounts, or full surrender within the surrender charge period. Surrender charges apply for the surrender charge period and decrease annually, see product disclosure for complete schedule.

26 Additional Resources American Equity s Interactive Agent Website American Equity s Online Training American Equity s Marketing Department Please Call

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