Secure Income Annuity Statement of Understanding

Transcription

1 Security Benefit Secure Income Annuity Statement of Understanding Effective Date: June 16, 2014 Must be signed by the customer and agent and the signature page returned to Security Benefi t with the application.

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3 Thank you for your interest in the Secure Income Annuity (SIA) from Security Benefit Life Insurance Company (Security Benefit). This guide describes the key features of the SIA so you can determine if it will meet your financial goals. For more specific information, please refer to the contract as it is the legal document setting forth our obligation to you. The Secure Income Annuity The Secure Income Annuity is a flexible premium, deferred fixed index annuity with a premium Bonus. If you take out funds during the 10 year surrender charge period (9 years for Connecticut and Delaware), a surrender charge, Market Value Adjustment (the Market Value Adjustment does not apply in all states), and bonus recapture may apply. It is designed as a long-term holding. Thus, you should not purchase the Secure Income Annuity if you will need the funds during the surrender charge period, other than amounts available through free withdrawals. The Secure Income Annuity offers four interest crediting options the Fixed Account and three Index Accounts. You may receive guaranteed periodic payouts from the annuity. Buying the Secure Income Annuity How do I buy the Secure Income Annuity? You must complete an application and you must pay an initial amount or Purchase Payment. The minimum initial Purchase Payment is $25,000. As a flexible premium annuity, you may make subsequent Purchase Payments to the annuity in any amount and at any frequency, subject to the limits described in your contract. Can I change my mind? You have a specific number of days to review an annuity after you buy it. During that time, if you decide that you do not want the annuity, you can return it for your entire Purchase Payment. Your free look period is shown on the contract cover page. If you are replacing a previous annuity contract you own, the free look period may be different than that listed on the cover page of your contract (varies by state). If so, there will be an additional notice for the free look period that is included with your contract. You can return your annuity: During the free look period. If you do, you will receive your entire Purchase Payment, with no penalty. You will not receive the Bonus. The Bonus For all Purchase Payments we receive in the first contract year, we add a Bonus to the Account Value. The Bonus is equal to the Purchase Payments we receive in the first contract year multiplied by the Bonus rate. The Bonus rate depends on the state in which you purchase the annuity. All states other than those listed below 8% California 7% Alaska, Indiana, Maine, Minnesota, Missouri, Nevada, New Hampshire, New Jersey, Ohio, Oregon, Pennsylvania, South Carolina, Texas, Utah, Washington Connecticut, Delaware 2% Bonus annuities, such as the Secure Income Annuity, may include changes to the elements used to determine the index interest credits or changes to the interest rate that are not included in similar annuities without a bonus. These changes may include lower current interest rates, higher surrender charges, longer surrender charge periods, lower participation rates or caps, higher spreads, or other changes. The amount of charges or reduction in interest credits may exceed the amount of the bonus. Interest Under the Secure Income Annuity What are the available interest options? Under the Secure Income Annuity, you select how we credit interest by choosing among the Fixed Account and the available Index Accounts. Currently, there are three Index Accounts offered the Morgan Stanley Dynamic Allocation 5.5% 2

4 (MSDA) Two Year Point to Point Index Account, the S&P 500 Annual Point to Point Index Account and the S&P 500 Monthly Sum Index Account. You may choose to allocate your initial Purchase Payment among the Fixed Account and Index Accounts in whole percentages. What is the Fixed Account? The Fixed Account is a crediting option that credits interest daily at a rate at least equal to the guaranteed minimum interest rate (GMIR). At the time we issue your contract, we set the GMIR and it will be shown in your contract. The GMIR will be at least 1%. What are the Index Accounts? The Index Accounts are crediting options that credit interest at the end of the applicable Index Term and are based on the change in the applicable index and the applicable crediting method. Index Account Name MSDA 2 Year Point to Point Index Account* S&P 500 Annual Point to Point Index Account S&P 500 Monthly Sum Index Account Applicable Index Term 2 contract years 1 contract year 1 contract year Applicable Index Morgan Stanley Dynamic Allocation (MSDA) Index Standard & Poor's 500 Composite Stock Price (the S&P 500 ) S&P 500 Applicable Crediting Method Point to Point with an Annual Spread and Participation Rate Point to Point with a Cap Monthly Sum with a Monthly Cap on index increases We determine the index interest rate at the end of each Index Term for each Index Account. If any amount is taken from an Index Account on or before the end of the Index Term, no index interest is credited on that amount. The minimum index interest rate for each Index Account is 0%. What are the applicable indices? What is the Morgan Stanley Dynamic Allocation Index? The Morgan Stanley Dynamic Allocation (MSDA) Index is a rules-based index that consists of U.S.-listed Exchange Traded Funds which track four distinct asset classes: (1)Equities, (2)Bonds, (3) Short-Term Treasuries and (4) Alternatives The allocation among the asset classes is determined by the rules-based strategy. The goal of the strategy is to identify an appropriate allocation for a given level of risk by analyzing historical returns, volatility and the historical correlation between asset classes. The proportion of the index allocated to a particular asset class, and the investments within each asset class, are then adjusted according to the strategy. Each asset class is subject to maximum allocation limits which helps to minimize the impact any single asset class can have on the overall index. Once the asset class allocation is determined, a daily volatility control calculation is completed to adjust the allocation between the asset classes and cash in order to achieve a certain level of volatility for the MSDA Index. The volatility control calculation may reduce the potential positive change in the MSDA Index and thus reduce the index interest rate for the MSDA 2 Year Point to Point Index Account. In addition, because the volatility control calculation is expected to reduce the overall volatility of the MSDA Index, it will also reduce Security Benefit s hedging costs for the MSDA 2 Year Point to Point Index Account. The MSDA Index is calculated daily by Morgan Stanley & Co. LLC and daily valuations are available on FinancialTimes.com with the ticker symbol MSUSMSDA. In computing the performance of the MSDA Index, Morgan Stanley deducts on a daily basis a servicing cost of 0.50% per annum. This reduces the potential positive change in the MSDA Index. While you may select the MSDA 2 Year Point to Point Index Account, your Account Value is not investing in the MSDA Index or in any equity securities or other securities. For more information on the MSDA Index, please refer to the A Closer Look at the Morgan Stanley Dynamic Allocation Index brochure. * The MSDA 2 Year Point to Point Index Account is not available for allocation by residents of Iowa. 3

5 What is the Standard & Poor's 500 Composite Stock Price Index? The S&P 500 is a widely recognized benchmark of U.S. stock market performance that is dominated by the stocks of large U.S. companies. The S&P 500 does not include the impact of dividends. While you may select an Index Account that is based upon the S&P 500, your Account Value is not investing in the S&P 500 or in any equity securities or other securities. How is the index based interest computed under the different crediting methods? How is interest computed under the Point to Point with Annual Spread and Participation Rate? We compute the interest rate at the end of the Index Term based upon the change in the applicable index over the Index Term, subject to an Annual Spread and a Participation Rate. We compute the difference in the beginning and ending values for the Index Term. If the difference is positive, we divide that difference by the Index Term's beginning value to determine the percentage change in the index for the Index Term. We then subtract an Annual Spread for each year in the Index Term. We then multiply this amount by a Participation Rate. If the difference in the beginning and ending index values is negative, the index interest rate is 0%. The Annual Spread is deducted in computing the index interest. At the time we issue your contract, we set the Current Annual Spread and a Guaranteed Annual Spread for the applicable Index Account and they are shown in your contract. The Current Annual Spread on the MSDA Index Account is 1.75%. We may change the Current Annual Spread at the end of each Index Term, but it will never be more than the Guaranteed Annual Spread. The Participation Rate is a percentage applied to determine the index interest rate. At the time we issue your contract, we set the Current Participation Rate and a Guaranteed Participation Rate. The Current Participation Rate is 100%. We may change the Current Participation Rate at the end of each Index Term, but it will never be less than the Guaranteed Participation Rate. For each Index Term, the closing value of the applicable index on the first day of the Index Term is the beginning value and the closing value of the index on the following Index Term is the ending value. Accordingly, the ending value for one Index Term will be the beginning value for the next Index Term. If the index value is not available for any day, we use the previous available day's closing value. Example: For the MSDA 2 Year Point to Point Index Account, assume that (i) Mary's contract is issued on April 2, 2012, (ii) the MSDA 2 Year Point to Point Index Account Value on April 2, 2012 (the beginning of the contract year) was $100,000, (iii) no withdrawals were made and no rider charges were deducted during the Index Term, (iv) the Annual Spread is 3.00%, (v) the Participation Rate is 100%, (v) the index value of the MSDA Index on April 2, 2012 was 1,000, and (vi) the index value of the MSDA Index on April 2, 2014 (the end of the Index Term) was 1,150, then: Difference in MSDA Index value = MSDA Index ending value - MSDA Index beginning value 150 = Because the difference is positive, we determine the percentage change as follows: Percentage change in MSDA Index value = Difference in MSDA Index value MSDA Index beginning value 15% = We then subtract a 3.00% Annual Spread for each of the two years of the Index Term Percentage change in MSDA Index value - Two Years' of Annual Spread 9% = 15% - 6% The percentage change in the index value, less the Annual Spread, is then multiplied by the Participation Rate. Because the Participation Rate is 100%, the index interest rate for the Index Account would be 9% and the index interest would be 4

6 $9,000. Thus, at the end of the Index Term on April 2, 2014, Mary's ending Point to Point Index Account Value would be $109,000. This example is only to show how the interest is computed under the Point to Point with an Annual Spread and Participation Rate crediting method and does not reflect what the interest would be for your annuity. How is interest computed under the Point to Point with Cap? We compute the interest rate at the end of the Index Term based upon the change in the applicable index over the Index Term, subject to a Cap. We compute the difference in the beginning and ending values for the Index Term. If the difference is positive, we divide that difference by the Index Term's beginning value to determine the percentage change in the index for the Index Term. We then compare the percentage change to the Cap and use the lower of the percentage change or the Cap as the interest rate. If the difference in the beginning and ending values is negative, the interest rate is 0%. The Cap is the maximum rate of interest that we will credit under the Point to Point with Cap crediting method. At the time we issue your contract, we set the current Cap and the guaranteed Cap for the applicable Index Account and they are shown in your contract. The current guaranteed Cap for the S&P 500 Annual Point to Point Index Account is 1%. Each contract year we may change the Cap for the S&P 500 Annual Point to Point Index Account, but it will never be less than the guaranteed Cap. For each Index Term, the closing value of the applicable index on the first day of the Index Term is the beginning value and the closing value of the index on the following Index Term is the ending value. Accordingly, the ending value for one Index Term will be the beginning value for the next Index Term. If the index value is not available for any day, we use the previous available day's closing value. Example: For the S&P 500 Annual Point to Point Index Account, assume that (i) JoAnn's contract is issued on April 1, 2013, (ii) the S&P 500 Annual Point to Point Index Account Value on April 1, 2013 (the beginning of the contract year) was $100,000, (iii) no withdrawals were made and no rider charges were deducted during the Index Term, (iv) the Cap is 1%, (v) the value of the S&P 500 index on April 1, 2013 was 1,000, and (v) the value of the S&P 500 index on April 1, 2014 (the end of the contract year) was 1,100, then: Difference in S&P 500 Index value = S&P 500 Index ending value - S&P 500 Index beginning value 100 = Because the difference is positive, we determine the percentage change as follows: Percentage change in S&P 500 Index value = Difference in S&P 500 Index value S&P 500 Index beginning value 10% = We then compare the 10% percentage change in index value to the Cap and use the lower of the two. Since the 1% Cap is lower than the 10% change in the S&P 500 Index value, the index interest rate for the Annual Point to Point Index Account for the year would be 1% and the index interest would be $1,000. Thus, JoAnn's ending Annual Point to Point Index Account Value would be $101,000 at the end of the Index Term on April 1, This example is only to show how the interest is computed under the Point to Point with Cap crediting method and does not reflect what the interest would be for your annuity. How is index interest computed under the Monthly Sum with a Monthly Cap? We compute the interest rate based upon the sum of the monthly changes in the applicable index over the contract year, not including dividends. For each month of the contract year, the closing value on the first day of the month is the beginning value and the closing value on the same day of the next month is the ending value. For each month, last month's ending value is the current month's beginning value. Accordingly, the ending value for one month will be the beginning value for the next month. If the applicable index value is not available for any day, we use the previous available day's closing value. 5

7 We compute the difference in the beginning and ending value for each month of the contract year. Next, we divide that difference by the month's beginning value to determine the percentage change in the applicable index for each month. If the difference is positive, we compare the percentage change to the Monthly Cap and use the lower of the monthly percentage change or the Monthly Cap as the monthly change. No Monthly Cap applies to a negative difference. Thus, negative changes may have a greater impact on the interest rate computation than positive changes. We then sum all the capped monthly changes for the contract year. If the sum is positive, it is used as the interest rate. If the sum is negative, the interest rate is 0%. The Monthly Cap is the maximum monthly change that is used in computing the sum of the monthly changes. At the time we issue your contract, we set the current Monthly Cap and the guaranteed Monthly Cap and they are shown in your contract. The current guaranteed Monthly Cap is 1%. Each contract year we may change the Monthly Cap, but it will never be less than the guaranteed Monthly Cap. Example: Assume that (i) Bill's contract was issued on January 15, 2013, (ii) the Monthly Sum Index Account Value on January 15, 2013 (the beginning of the contract year) was $100,000, (iii) no withdrawals were made and no rider charges were deducted during the Index Term, (iv) the Monthly Cap is 1%, and (v) the monthly changes in the applicable index over the contract year are: Apply Monthly Cap Capped Monthly Change % Index Date Index Value Monthly % Difference 1/15/ /15/ % 1.00% 1.00% 3/15/ % 1.00% 1.00% 4/15/ % % 5/15/ % 1.00% 1.00% 6/14/ % % 7/15/ % 1.00% 1.00% 8/15/ % % 9/13/ % 1.00% 1.00% 10/15/ % % 11/15/ % 1.00% 1.00% 12/13/ % % 1/15/ % 1.00% 1.00% Sum of Capped Monthly Changes 2.61% For each month, the ending value is compared to the beginning value. The monthly change percentage is then determined. For example, for the month between 2/15/2013 and 3/15/2013: Difference in S&P 500 Index value = S&P 500 Index ending value - S&P 500 Index beginning value = Because the difference is positive, we determine the percentage change as follows: Percentage change in S&P 500 Index value = Difference in S&P 500 Index value S&P 500 Index beginning value 2.69% =

8 Because the monthly change percentage is positive, we then compare it to the Monthly Cap and use the lower of the two as the capped monthly change. For example, because the 2.69% for the month between 2/15/2013 and 3/15/2013 is greater than 1%, the 1% Monthly Cap is used for that month. The sum of all the monthly change percentages at the end of the Index Term, 2.61%, is the index interest rate for the Monthly Sum Index Account and the index interest would be $2,610. Thus, Bill's ending Monthly Sum Index Account Value at the end of the Index Term would be $102,610. This example is only to show how the Monthly Sum Index Account interest is computed and does not reflect what the interest would be for your annuity. Can I change how interest is credited under my contract? Yes, on each contract anniversary, you may change the method we use to credit interest to your contract by transferring your Account Value among the Fixed Account and the available Index Accounts, unless you previously chose a multicontract year Index Account. If you chose a multi-contract year Index Account, you must wait until the end of the multicontract year period to change the crediting method. Purchase Payments received after the contract date are allocated to the Fixed Account and may be transferred to the available Index Accounts on a contract anniversary. Each contract anniversary we will send you a notice that includes the Fixed Account interest rate and information on the Index Accounts available at that time. We must receive your request for changes on a form we accept on or before the 21st day after the contract anniversary. If you do not request a transfer or if the request is received after the 21st day after the contract anniversary, the allocation of the Account Value will not change, unless an Index Account is no longer offered. In such case, the amount in the discontinued Index Account will be transferred to the Fixed Account. Values Under the Secure Income Annuity If you take money from your Secure Income Annuity during the surrender charge period, a surrender charge, bonus recapture and a Market Value Adjustment may apply. What is the Account Value? The Account Value equals the sum of the Fixed Account Value and the Index Account Values. The Fixed Account Value is based upon the amount of your Account Value allocated to the Fixed Account and interest credited on the Fixed Account. The Index Account Values are based upon the amount of your Account Value allocated to the Index Accounts and interest credited, if any, on the Index Accounts. The Fixed Account Values and Index Account Values also take into account any withdrawals, including the bonus recapture, Market Value Adjustment and surrender charges that applied to the withdrawals. What is the Cash Surrender Value? The Cash Surrender Value is equal to the greater of: (i) the Guaranteed Minimum Cash Surrender Value or (ii) the Account Value, (a) plus or minus any Market Value Adjustment, (b) minus any surrender charge, (c) minus any bonus recapture, (d) minus any premium or other tax, and (e) minus any rider charge that applies. The Guaranteed Minimum Cash Surrender Value is equal to 87.5% of the Purchase Payments, increased by interest credited at the GMIR, less withdrawals, and less premium or other taxes that apply 7

9 The Charges and Adjustments Under the Secure Income Annuity What are the Surrender Charges? A surrender charge applies during the surrender charge period, as shown in the surrender charge chart below. The surrender charge varies by contract year and is based upon where you purchased the annuity. For all states other than those listed below, the surrender charge by contract year is as follows: % 11% 10% 9% 8% 7% 6% 5% 4% 2% 0% For Florida, the surrender charge by contract year is as follows: % 10% 10% 9% 8% 7% 6% 5% 4% 2% 0% For Alaska, Indiana, Minnesota, Missouri, Nevada, New Hampshire, New Jersey, Ohio, Oregon, Pennsylvania, South Carolina, Texas, Utah and Washington, the surrender charge by contract year is as follows: % 8.1% 7.2% 6.3% 5.4% 4.5% 3.6% 2.7% 1.8% 0.9% 0% For Connecticut and Delaware, the surrender charge by contract year is as follows: % 7.25% 6.50% 5.50% 4.50% 3.50% 2.50% 1.50% 0.75% 0% What is a bonus recapture? A bonus recapture applies during the surrender charge period, as shown in the bonus recapture chart below. The bonus recapture varies by contract year and is based upon the state where you purchased the annuity. For all states other than those listed below, the bonus recapture by contract year is as follows: % 100% 100% 100% 100% 100% 80% 60% 40% 20% 0% For Alaska, Indiana, Minnesota, Missouri, Nevada, New Hampshire, New Jersey, Ohio, Oregon, Pennsylvania, South Carolina, Texas, Utah and Washington, the bonus recapture by contract year is as follows: % 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% For Connecticut and Delaware, no bonus recapture applies. 8

10 What is a Market Value Adjustment? A Market Value Adjustment increases or decreases the Account Value to reflect changes in interest rates since you purchased your contract, measured by the 10-year Constant Maturity Treasury (10 year CMT) interest rate. If the 10-year CMT interest rate is (i) higher or (ii) lower, by no more than 25 basis points, than the 10-year CMT interest rate when you purchased your contract, an amount is deducted from the Account Value. If the 10-year CMT interest rate is lower, by 25 basis points or more, than the 10-year CMT rate when you purchased your annuity, an amount is added to the Account Value. The 25 basis points threshold is not applicable in Connecticut. The Market Value Adjustment applies during the surrender charge period. The Market Value Adjustment does not apply in Alaska, California, Indiana, Minnesota, Missouri, New Hampshire, New Jersey, Ohio, Oregon, Pennsylvania, South Carolina, Texas, Utah and Washington. Examples of the Market Value Adjustment These examples show how the Market Value Adjustment (MVA) increases or decreases the Cash Surrender Value based on changes in the market interest rate and the GMIR. The MVA is equal to MVA Factor multiplied by the Account Value less any unvested Bonus, subject to the MVA limit. The MVA Factor is: [[(1 + i0) / (1 + i *)]^T] - 1 Where: i0 = 10-year treasury rate on the date prior to the contract date; i1 = 10-year treasury rate on the date prior to the withdrawal; and T = the number of whole and fraction years until the end of the surrender charge period. *The in the MVA Factor is not applicable in Connecticut. The examples assume: $100,000 Purchase Payment allocated 50% to the S&P 500 Annual Point to Point Index Account and 50% to the MSDA 2 Year Point to Point Index Account with the following index interest rates for each Index Account: S&P 500 Annual Point to Point Index Account MSDA 2 Year Point to Point Index Account Year % 0.00% Year % 2.43% Year % 0.00% Year % 7.25% The surrender occurs at the start of the fifth contract year. The SIA was sold in Kansas. Therefore at the beginning of the fifth year the surrender charge is 8% and the Bonus Recapture is 100%. At the beginning of the fifth contract year, the Account Value is $120,098. 9

11 The MVA limit is based upon the Guaranteed Minimum Cash Surrender Value. The Guaranteed Minimum Cash Surrender Value is based on the GMIR. The MVA limit based on different GMIRs is shown below: 3% GMIR The MVA limit is $5,052. 2% GMIR The MVA limit is $9,149. 1% GMIR The MVA limit is $13,127. Interest Rate Increase MVA Reduction Market interest rate at purchase = 6% Market interest rate at surrender = 7.5% First Step Compute the MVA: MVA = the MVA Factor multiplied by the Account Value minus the bonus recapture. [[(1+.06) / ( )]^6] -1 = The MVA is $-10,490 [ * ($120,098 - $8,000)]. Second Step See if MVA Limit Applies: If the GMIR is 3%, the MVA limit applies and the reduction to the Cash Surrender Value for the MVA would be $5,052. If the GMIR is 2%, the MVA limit applies and the reduction to the Cash Surrender Value for the MVA would be $9,149. If the GMIR is 1%, the MVA limit does not apply and the reduction to the Cash Surrender Value for the MVA would be $10,490. Interest Rate Reduction MVA Increase Market interest rate at purchase = 6% Market interest rate at surrender = 4.5% First Step Compute the MVA: MVA = the MVA Factor multiplied by the Account Value minus the bonus recapture. [[(1+.06) / ( )]^6] -1 = The MVA is $8,269 [ * ($120,098 - $8,000)]. Second Step See if MVA Limit Applies: If the GMIR is 3%, the MVA limit applies, and the increase to the Cash Surrender Value for the MVA would be $5,052. If the GMIR is 2%, the MVA limit does not apply, and the increase to the Cash Surrender Value for the MVA would be $8,269. If the GMIR is 1%, the MVA limit does not apply, and the increase to the Cash Surrender Value for the MVA would be $8,269. A surrender charge, bonus recapture and Market Value Adjustment apply to any partial withdrawal, surrender or when annuity payouts start,* unless: The total amount withdrawn during the contract year is equal to or less than the Free Withdrawal amount; The surrender charge period no longer applies. If you qualify for the Nursing Home or Terminal Illness Waiver. * In Florida, these do not apply when annuity payouts start. When do the Market Value Adjustment, surrender charge, and bonus recapture apply? The Market Value Adjustment (if applicable in your state), surrender charge, and, except in Connecticut and Delaware, bonus recapture apply during the surrender charge period if: (i) you surrender your annuity; (ii) you take a withdrawal and your withdrawals in the contract year exceed the Free Withdrawal amount; or (iii) a payment is made upon the death of an owner who is not the spouse of the annuitant. Additionally for Florida, if you elect to annuitize your contract and take annuity payments from your annuity prior to the end of the surrender charge period, the bonus recapture will apply to your Account Value in determining the amount of the annuity payments you receive, but no surrender charge will apply. During the surrender charge period, the Market Value Adjustment, surrender charge, and bonus recapture do not apply if you satisfy conditions in the Nursing Home Waiver or Terminal Illness Waiver (if allowed in your state). 10

12 Can I access funds from my annuity without penalty? After the first contract year, you may take withdrawals up to Free Withdrawals each contract year and no Market Value Adjustment, surrender charge, or bonus recapture will apply. Free Withdrawals are one or multiple withdrawals in a contract year that are after the first anniversary of your contract and are, in total, up to 10% of the Account Value as of the start of the contract year. If the full amount of Free Withdrawals is not taken within a contract year, the portion not taken cannot be carried forward to future contract years. For withdrawals in excess of the Free Withdrawal amount, your Account Value will be reduced by the total amount of the withdrawal paid to you as well as any surrender charge, bonus recapture, and Market Value Adjustment that applies. The Free Withdrawal is not available for a full surrender during the surrender charge period. Thus, the surrender charge, Market Value Adjustment, and bonus recapture applies to the entire amount surrendered. In addition, if you surrender your annuity during the surrender charge period and within the prior 12 months took any Free Withdrawals, the surrender charge, Market Value Adjustment, and bonus recapture will apply to: (i) the decrease in the Account Value with respect to all Free Withdrawals taken in the prior 12 months; and (ii) the amount surrendered. Annuity Payouts Under Your Annuity Under your annuity, you may receive annuity payments based upon the eight different annuity options we currently offer. If you purchased the annuity in Florida, and (i) you decide to take annuity payments during the surrender charge period, you may only elect options 1 through 4 or option 8; or (ii) you decide to take annuity payments during the Window Period, you may elect any one of the eight options. If you do not select a payout option, the Life with 10-Year Fixed Period Option applies. Up to 30 days prior to the annuity start date, you may change the payout option. What are the annuity options? Option 1 Life Option: For the life of the annuitant. Upon death, no further payments will be made. Option 2 Life with Fixed Period Option: For the later of: (i) life of the annuitant or (ii) the end of a 5, 10, 15, or 20 contract year period that you choose.* Option 3 Life with Installment or Unit Refund Option: For the later of: (i) life of the annuitant or (ii) the end of the period equal to the annuity start amount divided by the first payment.* Option 4 Joint and Last Survivor Option: For as long as either the annuitant and joint annuitant is living. Option 5 Fixed Period Option: For a fixed number of contract years between 5 and 20.* Option 6 Fixed Payment Option: Of a fixed amount. If the annuitant dies before the amount applied plus daily interest credits is paid, the beneficiary receives the remaining annuity payments. Option 7 Period Certain Option: Until the end of a 10, 15, or 20 contract year period that you choose.* Option 8 Joint and Contingent Survivor Option: For the life of the primary annuitant and if the joint annuitant is living at the death of the primary annuitant, for the life of the joint annuitant. * If the annuitant dies before the end of the period, the beneficiary receives the remaining payments. After the 30 days prior to the annuity start date, the Cash Surrender Value will be applied to the annuity option and you cannot change the payout option or surrender your annuity. When may I begin receiving annuity payments? When you may begin receiving annuity payments depends upon the terms of your contract. If your contract is issued in: For all states other than those listed below: You may begin receiving annuity payments on the later of: (i) the contract anniversary following the annuitant s 95th birthday or (ii) the 24th contract anniversary. 11

13 For Alaska, Indiana, Minnesota, Missouri, New Hampshire, New Jersey, Ohio, Oregon, Pennsylvania, South Carolina, Texas, Utah and Washington: You may begin receiving annuity payments on any date after the tenth contract anniversary so long as we receive your written request at least 30 days prior to that date. Annuity payments must begin by the contract anniversary following the annuitant's 95th birthday. For Connecticut and Delaware: You may begin receiving annuity payments on any date after the ninth contract anniversary so long as we receive your written request at least 30 days prior to that date. Annuity payments must begin by the contact anniversary following the annuitant s 95th birthday. For Florida: While the contract will state an annuity start date, you may request to change the date to any day after the first contract anniversary and prior to the contract anniversary following the annuitant's 95th birthday so long as we receive written notice at least 30 days prior to the day annuity payments are to begin. Death of an Owner If annuity payments have started? If the entire value of the annuity has been applied to an annuity option then, upon the death of an annuitant, we will continue to make annuity payments, if any, as may apply under the annuity option chosen. If no annuity payments have started? If the entire value of the annuity has not been applied to an annuity option, then a death benefit is payable upon the death of a natural person owner. If the owner is not a natural person, then a death benefit is paid upon the death of the annuitant or any natural person joint owner. The death benefit is equal to the Account Value on the date we receive due proof of death, less any premium or other taxes we must pay. In certain circumstances, the contract can be continued and no death benefit is paid as shown in the "Distribution Rules for Death Benefits" of your contract. Benefit Riders The Nursing Home Waiver and Terminal Illness Waiver Endorsements are included with your annuity. In addition, you may purchase the optional Guaranteed Lifetime Withdrawal Benefit Rider (GLWB Rider). We will waive the surrender charge and Market Value Adjustment on any partial withdrawals or surrender after the third contract year if you meet the following requirements*: 1. Nursing Home Waiver. You are confined to a hospital or nursing facility for 90 or more consecutive days immediately preceding the withdrawal or surrender and continue to be confined at the time we receive your request. The confinement must begin after the issue date of the contract. We require proof of confinement. This endorsement is form 6054 (5-11). 2. Terminal Illness Waiver. You have been diagnosed with a terminal illness by a licensed doctor and the terminal illness is first diagnosed after the issue date of the contract. We require proof of the terminal illness. This endorsement is form 6055 (5-11). * State variations may apply. The GLWB Rider guarantees that if you withdraw only a set amount each year, called the Lifetime Annual Income, this amount will be available for the rest of your life. The GLWB Rider allows you to choose the starting point the Income Phase Start Date at which to begin receiving Lifetime Annual Income. 12

14 The GLWB Rider What is the GLWB Rider? The GLWB Rider is an optional benefit rider that you may purchase at the same time you apply for the Secure Income Annuity, provided that the youngest owner (or annuitant if the contract is owned by a non-natural person) is at least 55 years old. The GLWB Rider guarantees that you may withdraw from the Secure Income Annuity a specified amount each year, called the Lifetime Annual Income. Once you elect to begin Lifetime Annual Income, such income is available even if the Account Value of your annuity becomes zero. The GLWB Rider gives you flexibility in taking withdrawals from your annuity. However, when and how much you take as a withdrawal may reduce the Lifetime Annual Income you may subsequently take and could reduce the Lifetime Annual Income to zero. You select when you would like the Lifetime Annual Income to begin. At that time, you also select whether the GLWB Rider is for you or for you and your spouse. (In the states that allow it, you may select the GLWB Rider to be for you and your domestic or civil union partner.) For Lifetime Annual Income to continue for your spouse s lifetime, your spouse must be named as the designated beneficiary or the Joint Owner of your annuity. If someone other than your spouse is the designated beneficiary or Joint Owner of your annuity, under the federal tax laws, upon your death your annuity must terminate along with the GLWB Rider. In that event, Lifetime Annual Income is no longer payable and we will make a payment on your death. A domestic or civil union partner is not currently viewed as a spouse under the federal tax laws. The GLWB Rider also includes a Home Healthcare Doubler which doubles the Lifetime Annual Income you may withdraw for up to five contract years if you (or your spouse, if you elected to also cover your spouse) can no longer perform at least two of the six basic activities of daily living. The Home Healthcare Doubler can only be requested after your annuity has been in effect two contract years and we will require proof that at least two of the six basic activities of daily living cannot be performed each contract year while the Home Healthcare Doubler is being sought. The Home Healthcare Doubler is not available in California, Connecticut, Maryland, Minnesota, Missouri, New Jersey and Washington. The Home Healthcare Doubler may only be applied for once. If I purchase the GLWB Rider, when can I take withdrawals? You have the flexibility to take withdrawals whenever you like. However, the timing and the amount of the withdrawal may cause your Lifetime Annual Income to be reduced. In fact, withdrawals could reduce the Lifetime Annual Income to zero. How do withdrawals impact the guarantees under the GLWB Rider? Under the GLWB Rider, treatment of withdrawals is based upon whether the withdrawal is made before or after the Income Phase Start Date. You select when you want to start your Lifetime Annual Income. Taking withdrawals other than the Lifetime Annual Income will reduce your benefits under the GLWB Rider. How much is my Lifetime Annual Income? If you elect to take withdrawals prior to the Income Phase Start Date, the withdrawals will cause your Lifetime Annual Income to be lower than if you had not taken the withdrawals. If you elect to take withdrawals after the Income Phase Start Date that are equal to or less than your Lifetime Annual Income, the withdrawals will not reduce your Lifetime Annual Income. If you elect to take withdrawals after the Income Phase Start Date that are in excess of the Lifetime Annual Income, the withdrawals will reduce your subsequent Lifetime Annual Income. Your Lifetime Annual Income is the greater of (i) the amount computed by multiplying the Benefit Base by the Lifetime Withdrawal Rate; or (ii) the amount required to be taken as minimum distributions under the federal tax laws. Once you start your Lifetime Annual Income, if you take a withdrawal in excess of your Lifetime Annual Income, we will recompute the Lifetime Annual Income as well as the Benefit Base. Each will be reduced proportionately by the amount of the excess withdrawal compared to the Account Value. The Account Value used to compute the proportional reduction will be reduced by the non-excess withdrawal amount, but not the amount of the excess withdrawal. We will also recompute the Lifetime Annual Income each contract anniversary and if the Home Healthcare Doubler is requested. The Home Healthcare Doubler is not available in California, Connecticut, Maryland, Minnesota, Missouri, New Jersey and Washington. 13

15 Example: Assume that (i) JoAnn's Account Value when she starts her Lifetime Annual Income is $100,000, (ii) the Benefit Base when she starts her Lifetime Annual Income is $120,000, and (iii) the Lifetime Withdrawal Rate is 5.5%. The Benefit Base is the greater of the Account Value ($100,000) or the Benefit Base ($120,000). Accordingly, JoAnn's Benefit Base would be $120,000. The Lifetime Annual Income would be 5.5% of the Benefit Base, or $6,600 per year. This example is only to show how the Lifetime Annual Income is computed. It does not reflect what your Lifetime Annual Income will be. Your Benefit Base changes over the life of your annuity, including after the Lifetime Annual Income has begun. More information on the Benefit Base is set forth in the Benefit Base section. The Lifetime Withdrawal Rate is a percentage that is based upon (i) whether you elect the GLWB Rider for you (single coverage) or for you and your spouse or, if required, your domestic partner (joint coverage), and (ii) if single coverage, your age or, if joint coverage, the youngest age of you or your spouse/domestic partner, on the Income Phase Start Date. Benefit Base The Benefit Base is used to compute the Lifetime Annual Income and the GLWB Rider Charge. The Benefit Base is not an amount that may be withdrawn and is not an amount payable on death. The Benefit Base is recomputed: Prior to beginning the Lifetime Annual Income: On each contract anniversary to reflect the greater of the Benefit Base or Account Value. In general, each contract anniversary we look at the current Benefit Base (including any applicable Roll-up) and then compare it to the Account Value. The greater of the Benefit Base or Account Value will become the new Benefit Base. A Roll-up is used to compute the Benefit Base on each contract anniversary during which the Roll-up applies. The Roll-up is not interest and is not credited to your Account Value. You cannot receive the Roll-up upon a surrender or withdrawal, or as a death benefit. For each contract year that the Roll-up applies, we increase the last Benefit Base by 7%. The Roll-up applies for up to 20 contract years, as long as you elect to continue the Roll-up on the 10th contract anniversary (which you may only do if you are at that time age 79 or younger). The Roll-up ceases on the earlier of: (i) The date you start your Lifetime Annual Income;* (ii) The contract anniversary on or immediately following the day that you turn 85;* (iii) The 10th contract anniversary, if you do not continue the Roll-up; (iv) The 20th contract anniversary. *Because the Roll-up is only used in calculating the Benefit Base on a contract anniversary, if the Roll-up ceases because you elected to start your Lifetime Annual Income, the last date that the Benefit Base will increase by the Roll-up will be the contract anniversary prior to the start of your Lifetime Annual Income. Example: Assume that (i) Bill's contract was issued on March 1, 2011 when he is 61, (ii) the Benefit Base on March 1, 2015 (the fourth contract anniversary) is $100,000, (iii) no withdrawals or Purchase Payments are made between March 1, 2015 and March 1, 2016 (the fifth contract year), and (iv) the Account Value on March 1, 2016 (the fifth contract anniversary) is $110,000. The Benefit Base on the fifth contract anniversary, March 1, 2016, would be the greater of the Benefit Base including any applicable Roll-up ($100,000 x 1.07% = $107,000) or the Account Value ($110,000). Because the Account Value is greater, Bill's Benefit Base as of March 1, 2016 would be $110,000. This example is only to show how the Benefit Base is computed and does not reflect what the interest would be for your annuity. The Benefit Base is not the same as your Account Value. You cannot receive the Benefit Base upon a surrender or withdrawal. 14

16 After a Purchase Payment to increase the Benefit Base by the Purchase Payment and any Bonus on Purchase Payments made during the first contract year. After a withdrawal prior to beginning Lifetime Annual Income to reduce the Benefit Base proportionately by the amount of the withdrawal compared to the Account Value prior to the withdrawal. Please note that if you take a withdrawal prior to beginning Lifetime Annual Income, the withdrawal will reduce the Benefit Base by more than the dollar amount of the withdrawal. Example: Assume that (i) Bill has not yet elected the Income Phase Start Date, (ii) Bill takes a $20,000 withdrawal (which includes the surrender charge, bonus recapture and MVA), (iii) the Account Value at the time of the withdrawal is $100,000, and (iv) the Benefit Base at the time of withdrawal is $120,000. The withdrawal amount is 20% of the Account Value ($20,000 / $100,000). Accordingly, Bill's Benefit Base is also reduced by 20% or $24,000 ($120,000 x.20) (which is greater than the amount of the withdrawal) and his new Benefit Base is $96,000. This example is only to show how the Benefit Base is computed and does not reflect what the interest would be for your annuity. The Benefit Base is not the same as your Account Value. You cannot receive the Benefit Base upon a surrender or withdrawal. On the Income Phase Start Date to determine the initial Lifetime Annual Income. After beginning the Lifetime Annual Income: On each contract anniversary to reflect the greater of the Benefit Base or the Account Value. After an excess withdrawal to reduce the Benefit Base proportionately by the amount of the excess withdrawal compared to the Account Value prior to the excess withdrawal. Please note that an excess withdrawal will reduce the Benefit Base by more than the dollar amount of the excess withdrawal. In addition, any portion of a Free Withdrawal in excess of the Lifetime Annual Income amount will be an excess withdrawal. Example: Assume that (i) JoAnn elected the Income Phase Start Date, (ii) the Lifetime Annual Income is $6,600, (iii) after the Income Phase Start Date JoAnn takes a withdrawal of $26,600 (which includes the surrender charge, bonus recapture and MVA), (iv) the Account Value at the time of the withdrawal is $106,600, and (v) the Benefit Base at the time of the withdrawal is $120,000. The amount of the withdrawal that is an excess withdrawal is $20,000 ($26,600 - $6,600). The Account Value is first reduced by the non-excess withdrawal amount to $100,000 ($106,600 - $6,600). The excess withdrawal amount is thus 20% of the Account Value prior to the excess withdrawal ($20,000 / $100,000). Accordingly, JoAnn's Benefit Base is also reduced by 20% or $24,000 ($120,000 x.20) (which is greater than the amount of the withdrawal) and her new Benefit Base is $96,000. This example is only to show how the Benefit Base is computed and does not reflect what the interest would be for your annuity. The Benefit Base is not the same as your Account Value. You cannot receive the Benefit Base upon a surrender or withdrawal. Home Healthcare Doubler Under the Home Healthcare Doubler, the Lifetime Withdrawal Rate doubles for up to five contract years if proof is submitted that you (single coverage) or your spouse/partner (joint coverage) is unable to perform at least two of the six basic activities of daily living during this period (bathing, continence, dressing, eating, toileting, and transferring). A twocontract year waiting period applies before the Home Healthcare Doubler may be requested and it may only be applied for once. A request for the Home Healthcare Doubler must be on forms we accept and receive. The necessary forms will require statements by an attending doctor certifying that at least two of the six basic activities of daily living cannot be performed. We require the request, along with proof, to be submitted each contract year during which the increase to the Lifetime Withdrawal Rate is sought. The Home Healthcare Doubler is not available in California, Connecticut, Maryland, Minnesota, Missouri, New Jersey and Washington. 15

17 What is the Charge for the GLWB Rider? A Rider Charge is the charge for the GLWB Rider. No index interest is credited on amounts taken to pay the Rider Charge at the first contract anniversary after the start of a 2 year Index Term. The initial Rider Charge is 0.95 % of the Benefit Base. The GLWB Rider Charge may be changed on the 10th Contract Anniversary if you elect to continue the Roll-up on the 10th Contract Anniversary as may apply. The GLWB Rider Charge will never exceed the Guaranteed Maximum Rider Charge of 1.5% of the Benefit Base. Each Rider Charge is taken pro rata from the Fixed Account and Index Accounts based upon their values as of the applicable contract anniversary that the charge is deducted. On each 5th Contract Anniversary prior to the Income Phase Start Date, we will review the amount of interest credited to your annuity and the amount of GLWB Rider Charge deducted from your annuity. If the GLWB Rider Charge exceeds the amount of interest credited, we will refund the excess to your Account Value. The GLWB Rider Charge is deducted on each contract anniversary and upon the payment of any amounts payable at death, a full withdrawal from the annuity, or the when you apply your entire Account Value to an annuity option. Taxes on Your Annuity What happens when I receive funds from my annuity? When you take annuity payments or make a withdrawal, you pay ordinary income taxes Interest credited on your on the interest credited. If the annuity is tax qualified, you also pay ordinary income taxes annuity is tax-deferred. on the Purchase Payments received. This means you do not pay taxes on the interest You may also pay a 10% federal income tax penalty on amounts you withdraw before credited to your annuity attaining age 59½ if they do not meet certain exceptions such as disability, health until the money is paid insurance expenses, medical expenses, or first time home buyer expenses. to you. What happens if I exchange my annuity? You can exchange one tax-deferred annuity for another without paying income taxes on This guide is not intended the earnings when you make the exchange. Taxes may be assessed if you take to provide tax advice. You withdrawals from the annuity that you exchanged into prior to the expiration of a 180 day should consult your tax period. Before you make such an exchange, compare the benefits, features, and costs adviser to discuss your of the two annuities. You may also want to consider consulting a tax adviser before particular circumstances. making exchanges or withdrawals to determine any potential tax consequences. If your state imposes a premium tax, it will be deducted from the money you receive. No Extra Tax Benefits from Buying an Annuity in a Retirement Plan Buying an annuity within an IRA, 401(k), or other tax-deferred retirement plan does not give you any extra tax benefits. You should choose your annuity based on its features and benefits as well as its risks and costs, not on tax benefits alone. Important Information About Replacement A replacement occurs when funds are taken from an existing annuity contract or life insurance policy, whether by a loan, a partial withdrawal (including a Free Withdrawal), or a full surrender, and those funds are used to purchase a new annuity contract (or life insurance policy). The withdrawal of funds and the purchase of the new annuity contract need not occur simultaneously for the transaction to constitute a replacement. Some state laws specify that a replacement has occurred if funds taken from an existing annuity contract or life insurance policy are used to purchase a new annuity contract up to a year later. Replacement of an existing annuity contract or life insurance policy is something that should be considered carefully. You should weigh the benefits and costs of the existing contract or policy against those of the SIA to determine whether the replacement would better serve your insurance needs and financial objectives. 16

18 Reaching Security Benefit You can reach us in several ways: By Phone: By By mail: One Security Benefit Place Topeka, KS On the web: 17

19 Secure Income Annuity Statement of Understanding Effective Date: June 16, 2014 Please send this original, signed signature page to Security Benefit with the Application, provide the client with a copy of the entire signed SOU and retain a copy for your records. Applicant Statements Acknowledgement: By signing below, I certify that: I have read the above information and it has been explained to me by the Producer. I understand the features of the Secure Income Annuity described. I understand that certain withdrawals, surrenders, and payments made during the surrender charge period will be subject to a Market Value Adjustment (if applicable in my state), surrender charge, and bonus recapture. I understand the features of the Guaranteed Lifetime Withdrawal Benefi t rider described. I understand that the timing and amount of the withdrawals made may reduce my Lifetime Annual Income. I understand that any values shown are for explanatory purposes only and are not guaranteed. I understand that the Producer will be compensated if I purchase the Secure Income Annuity. I understand that I should consult my tax advisor regarding possible tax implications of the purchase, sale, surrender, and annuitization of an annuity and, if it applies, the exchange of an existing annuity or life insurance contract. I understand that Purchase Payments received after the contract is issued are allocated to the Fixed Account for the remainder of the contract year and until I request a transfer. I understand that the GMIR, any applicable Index Account Caps, e.g., the current Cap and the current Monthly Cap, and beginning values for the S&P 500 index will not be set until the contract date and that they may be different from those in effect when the application was signed. I understand that interest begins to accrue on amounts received by Security Benefi t only from the contract date; thus money received prior to the contract date will not earn any interest. Refer to the Important Information About Replacement on page 16 and complete the following: Applicant: I acknowledge that a replacement is is not occurring by my purchase of the Secure Income Annuity. Applicant s initials Joint Applicant s initials (if applicable). Producer: I acknowledge that a replacement is is not occurring by the applicant s purchase of the Secure Income Annuity. Producer s initials. Applicant Signature: Date: Social Security Number/Tax I.D. Number: Joint Applicant Signature: Date: Producer Acknowledgement By signing below, I certify that I have reviewed the above information with the Applicant(s) and provided him or her with a signed copy of this document. I also certify that I have not made any statements that differ from what is stated in this document and that no promises or assurances were given as to the future value of any nonguaranteed elements of the Secure Income Annuity. Producer Signature: Date: 18

20 The Secure Income Annuity is not: (i) a deposit, (ii) FDIC insured, (iii) guaranteed by a bank or credit union, or (iv) insured by any federal government agency or NCUA/NCUSIF. This Statement of Understanding describes the Security Benefi t Secure Income Annuity, a fl exible premium deferred fi xed index annuity with a Bonus, surrender charge, bonus recapture and, in most states, a Market Value Adjustment. In most states, the Secure Income Annuity is issued on Form 5800 (11-10), and the Guaranteed Lifetime Withdrawal Benefi t Rider is issued on form 5820 (11-10). In Alaska, Indiana, Minnesota, Missouri, New Hampshire, New Jersey, Ohio, Oregon, Pennsylvania, South Carolina, Texas, Utah and Washington the Secure Income Annuity form is ICC (11-10). Product features and availability may vary by state. S&P is a registered trademark of Standard & Poor s Financial Services LLC ( S&P ) and Dow Jones is a registered trademark of Dow Jones Trademark Holdings LLC ( Dow Jones ). These trademarks have been licensed for use by S&P Dow Jones Indices LLC. S&P and S&P 500 are trademarks of S&P and have been sublicensed for certain purposes by Security Benefi t Life Insurance Company. The Security Benefi t Secure Income Annuity is not sponsored, endorsed, sold or promoted by S&P Dow Jones Indices LLC, Dow Jones, S&P or their respective affi liates make any representation regarding the advisability of purchasing such product. The Secure Income Annuity (SIA) that is linked to the performance of the MSDA Index is not sponsored, endorsed, sold or promoted by Morgan Stanley & Co. LLC or any of its affi liates (collectively, Morgan Stanley ). Neither Morgan Stanley nor any other party (including without limitation any calculation agents or data providers) makes any representation or warranty, express or implied, regarding the advisability of purchasing this product. The Morgan Stanley Dynamic Allocation Index (the Index ) is the exclusive property of Morgan Stanley. Morgan Stanley and the Index are service marks of Morgan Stanley and have been licensed for use for certain purposes by Security Benefi t Life Insurance Company. Neither Morgan Stanley nor any other party has or will have any obligation or liability to owners of this product in connection with the administration or marketing of this product, and neither Morgan Stanley nor any other party guarantees the accuracy and/or the completeness of the Index or any data included therein. No purchaser, seller or holder of this product, or any other person or entity, should use or refer to any Morgan Stanley trade name, trademark or service mark to sponsor, endorse, market or promote this product without fi rst contacting Morgan Stanley to determine whether Morgan Stanley s permission is required. Under no circumstances may any person or entity claim any affi liation with Morgan Stanley without the prior written permission of Morgan Stanley. In calculating the performance of the Index, Morgan Stanley deducts on a daily basis a servicing cost of 0.50% per annum. This reduces the potential positive change in the Index and thus the amount of interest that will be credited to a fi xed index annuity that is allocated to the Index. The volatility control calculation applied by Morgan Stanley may reduce the potential positive change in the Index and thus the amount of interest that will be credited to a fi xed index annuity that is allocated to the Index. In addition, because the volatility control calculation is expected to reduce the overall volatility of the Index, it will also reduce the cost to Security Benefi t Life Insurance Company of hedging its interest crediting risk for fi xed index annuities with the Index as a crediting option. TO AND THROUGH RETIREMENT