Life Module - VI

1. Life Module - VI

2. Module Objectives • Review Homework Assignment • Farmers Annuity Plans • Proactive Policy Conservation

3. Review Homework Assignment 1. What is the difference between whole life and term insurance? Whole Life Term Life Protection: Benefits: Premiums: Initial Cost: Long run cost: Renewability: Permanent Temporary Death and living Death only Fixed Increase with age Higher than term Lower than whole Usually lower than term Usually higher than whole Renewable Usually have to provide evidence of insurability at re-entry.

4. Review Homework Assignment 2. Briefly describe Farmers Flexible Universal Life? Universal life is a flexible premium product providing adjustable, low cost protection and cash values which earn interest at current rates (interest sensitive). Renewable term insurance, coupled with a cash value account which has the potential to earn higher earnings.

5. Review Homework Assignment 3. Give a few examples of living benefits? 4. What is an excess credit? 5. What is a paid-up addition? 6. What is the difference between 10 Year Level and Level 10?

6. Review Homework Assignment 7. Explain the “Corridor”. 8. What does the Guaranteed Insurability Rider do when added to a life policy? 9. What is the 10 day free look provision? 10. Discuss you needs analysis presentation.

7. Farmers Annuity Plans More time than money? A Farmers annuity may be right for you!

8. Farmers Annuity Plans An annuity is a legal binding contract that encourages individuals to save a portion of income or compensation for retirement. It guarantees to pay an income for a specified period of time or for a person’s entire life. An annuity is one of the last remaining tax-advantaged vehicles available to accumulate money for the future. It can be used to supplement your pension or Social Security or to fund your I.R.A.

9. Farmers Annuity Plans A deferred annuity is very similar to a bank CD. Like a CD, the consumer’s principle is safe and a return on the money is guaranteed. The life of an annuity has two phases, accumulation and payout. Annuities offer advantages in both phases.

10. Farmers Annuity Plans • In the accumulation phase: • Principle grows and compounds inside an annuity free from federal income tax. As a result, funds accumulate faster and larger than a CD where interest compounded is taxed as ordinary income every year. • Both CD’s and annuities carry penalties for early withdrawals, however the surrender charge for an annuity decreases to zero after a few years. Every time a CD funds are rolled over, a new penalty period begins.

11. Farmers Annuity Plans • In the payout (or Annuitization) phase: • Annuities guarantee a payout stream and offer a variety of payout options, including lifetime income. • Although deferred annuities accumulate money free from current income tax, they do not eliminate the tax liability on interest earnings. They do, however allow the annuity owner to pay the taxes at a later date when tax costs could be minimized. Annuitization permits the annuitant to spread the tax liability over the number of years the income is to be received.

12. Farmers Annuity Plans • In the payout (or Annuitization) phase... • Unlike an IRA or other retirement accounts, there is no requirement to begin distributions at age 70 1/2. • For Estate planning purposes, an annuity by passes probate when left to a designated beneficiary. A spousal beneficiary can maintain the tax-deferred status for up to the lifetime of the beneficiary.

13. Comparing a Farmers Annuity to a CD • A Farmers Annuity can provide you with: • An optional, flexible retirement program • A secure cash accumulation plan • Competitive interest earnings • Tax savings • A death benefit for your beneficiary. • Certificates of Deposits can be easily rolled into a Farmers Annuity at maturity.

14. Comparing a Farmers Annuity to a CD • For Retirement • A Farmers Annuity can be used to establish a retirement plan if you wish.. including an IRA option. • It will enjoy competitive, tax-deferred interest earnings. • You can select guaranteed retirement income options…or a lump sum payment. • Your beneficiary will receive the entire annuity fund if you die before retirement. • You decide when and how much to pay into and withdraw from your annuity. • If you choose an IRA, your contributions may be income tax deductible.

15. Comparing a Farmers Annuity to a CD • For Cash Accumulation • At your option, a Farmers Annuity can be used as a secure cash accumulation plan. • Payments and withdrawals are flexible. • Interest earnings are competitive, and tax deferred. • There is a guaranteed minimum interest rate. • Your cash accumulation plan can readily be converted to a retirement program, at your option.

16. Comparing a Farmers Annuity to a CD Let’s compare with a CD. Assume a $10,000 deposit earning 8% interest and you’re in a 28% tax bracket: CD ANNUITY DEPOSIT: $10,000 $10,000 INTEREST: +800 +800 INCOME TAX: -224 -0 NET YEAR-END BALANCE: $10,576 $10,800 In effect, your 8% certificate has been reduced to a net of 5.76%. In 10 years, your original $10K CD would be worth $18,344 and your Annuity would have a balance of $21,589.

17. Flex-Pay Annuity (FPA)

18. Flex-Pay Annuity (FPA) Issue Ages: 0 - 80 Minimum Initial Deposit: $ 50.00 Interest Rate: Guaranteed at 3%. Current: 4.35% Expense Charges: There are NO annual policy admin. fees or set-up charges! The FPA is an annuity to which varying payment amounts can be made at any time. ($50.00 minimum)

19. Flex-Pay Annuity (FPA) Withdrawals: During any contract year, up to 10% of the fund balance as of the start of the contract year may be withdrawn without a surrender charge. The minimum withdrawal amount is $500 and the remaining balance after the withdrawal must be at least $500. Withdrawals in excess of 10% during any policy year will be subject to the following surrender charges: Policy Year Surrender Charge 1 7% 2 6% 3 5% 4 4% 5 3% 6 2% 7 1% 8 0%

20. Flex-Pay Annuity (FPA) Conversion to Farmers Annuity Plus: When at least $5,000 has been accumulated in the FPA, it may be transferred to the Annuity Plus. A new application is needed. Commissions are not paid on the amount transferred. Surrender charges will be waived. The issue date will start over (surrender charge time schedule). Retirement Annuity Options: Annuity payments for life with 120 monthly payments guaranteed (10 years certain) is the automatic option. Other options can be selected and will be discussed later in this Module. Death Benefit: All surrender charges will be waived and the entire fund balance will be paid to the named beneficiary if the annuitant or owner dies before the annuity start date.

21. Farmers Annuity Plus (FAP)

22. Farmers Annuity Plus (FAP) Issue Ages: 0 - 80 Min Initial Dep: $ 5,000.00 ($2K for IRA/SEP) Interest Rate: Guaranteed at 3%. Current: 6.00% Expense Charges: There are NO annual policy admin. fees or set-up charges! The FAP is an annuity to which varying payment amounts can be made at any time. ($50.00 minimum) Blue: Indicates different from FPA.

23. Farmers Annuity Plus (FAP) Withdrawals: During any contract year, up to 10% of the fund balance as of the start of the contract year may be withdrawn without a surrender charge. The minimum withdrawal amount is $500 and the remaining balance after the withdrawal must be at least $500. Withdrawals in excess of 10% during any policy year will be subject to the following surrender charges: Policy Year Surrender Charge 1 9% 2 9% 3 8% 4 8% 5 7% 6 7% 7 5% 8 0%

24. Single Premium Deferred Annuity (SPDA)

25. Single Premium Deferred Annuity (SPDA) Issue Ages: 0 - 80 Min Initial Dep: $ 50,000 - $ 99,000 Plan 394 $ 100,000 - $250,000 Plan 395 Interest Rate: Guaranteed at 3%. Current: 6.70% Plan 394 7.00% Plan 395 Expense Charges: There are NO annual policy admin. fees or set-up charges! Blue: Indicates different from FPA and FAP.

26. Single Premium Deferred Annuity (SPDA) Payment (Deposit): “Add-on” can be made with the minimum of $5,000 per deposit after 3 months of issue. Features: Skilled Nursing Facility Benefit - Prior to age 75 and after 6 months of issue, the annuitant may make a full surrender or partial withdrawal without surrender charge while confined to a skilled nursing facility. Partial Surrenders: Subject to a $2,500 minimum and limited to one per calendar quarter. Subject to same charges as FAP. Partial withdrawals are not allowed if the remaining balance would be less than $50,000 for Plan 394 and $100,000 for Plan 395. There is a $25 processing fee for full and partial withdrawals.

27. Single Premium Immediate Annuity (SPIA)

28. Single Premium Immediate Annuity (SPIA) Issue Ages: 0 - 80 This is a single premium annuity that can be used as a funding vehicle for both qualified and non-qualified deposits. The plan is designed to provide monthly income payments following the deposit of a single premium. Income payments can commence within 30 days or be deferred for up to 1 year. Premium Limits: Depending on age and sex, the minimum deposit is the amount necessary to provide a monthly income of $100.

29. Single Premium Immediate Annuity (SPIA) • Payout Options: Subject to Company approval, these payout options are generally available: • 10 to 30 year Period Certain and Life • Joint and Survivor • 10 to 30 year Period Certain. • Partial Withdrawals: Not allowed.

30. Farmers Equity Indexed Annuity (FEIA)

31. Equity Indexed Annuity Are you looking for ways to maximize your clients retirement income while protecting their principle? To accomplish this , many people diversify their retirement portfolios. Such portfolios typically include not only stocks and bonds, but also safer instruments such as CD’s, Treasury Bills and fixed annuities, which provide a stable return. Farmers Equity Indexed Annuity (FEIA) can be a part of a plan to help your client take control of their financial future. You can provide them with a potential for higher long-term growth and protect their principle from undue risk.

32. Equity Indexed Annuity • This annuity links interest earnings to increases in a leading U.S. stock market indicator, the Standard & Poor’s 500 Composite Stock Price Index while providing the safety of a traditional guaranteed minimum return. • SAFETY: Guaranteed return of at least 110% of your original principal when held with no withdrawals for a full seven-year term. • TAX ADVANTAGE: Interest earnings not taxed until withdrawn, which allows for faster accumulation. If held until retirement, you may be in a more favorable tax bracket.

33. Equity Indexed Annuity When you purchase a FEIA, you receive interest linked to the change in the S&P 500. The beginning Index value is set at the start of a seven-year term. The ending index value is based on the average of S&P Index values at the end of four quarterly intervals preceding the end of the term. The percentage change in the S&P Index value is then multiplied by a participation rate to determine the amount of interest to be credited to your annuity. You must hold the annuity for a full 7 years to realize this increase in your policy value.

34. Equity Indexed Annuity • Why use the S&P 500? • It is a widely recognized performance benchmark for U.S. stock market activity. • It is a U.S. Dept of Commerce leading economic indicator. • The S&P 500 does not contain the 500 largest stocks, but the stocks considered are generally leaders within their industry group. • Important industry groups are identified and allocated a representative sample of stock. The four major groups are industrials, utilities, financial and transportation. • It includes stocks from the NYSE, the American Stock Exchange and the NASDAQ.

35. Equity Indexed Annuity Policy Specifications: Minimum Premium: $5,000 (No additional deposits) Maximum Premium: $1,000,000 without Company approval Issue Ages: 0-75 at issue (annuitant and owner) Partial Withdrawals:Limit one per policy year ($500 minimum) starting second policy year. Surrender:May be surrendered before annuity start date for policy value. Commissions: 4% (all deposits) Internal Rollovers: Penalty free transfers of $5,000 minimum from FNWL annuities are allowed (no commissions) Transfers from SPDA require a $25 processing fee.

36. Equity Indexed Annuity PARTICIPATION RATE:This rate is set at the time of issue (70% to over 100%). Without exception, the issue date will be the first business day of the month following receipt of the application and funds. This rate is guaranteed not to change during the term. No matter what happens to the S&P Index, your annuity has a guaranteed minimum value. The value at any time is 90 percent of your initial premium (less withdrawals) accumulated at 3 percent annual interest. WITHDRAWALS:You may make partial withdrawals after the first policy year (minimum $500, limited to one per year with balance not below $5,000). You may surrender the policy for its guaranteed minimum value; however, a IRS penalty of 10% will apply for withdrawals prior to age 59 1/2.

37. Equity Indexed Annuity How the Interest Earnings are Calculated: A x B x C A = Premium less withdrawals B = The percentage change in Index Value = Avg. Index Value ( last 4 quarters of term) - Issue Date Index Value Issue Date Index Value C = The Participation Rate Or, if the S&P 500 declines, Farmers protects your principle if held for the full 7 year term. If less than 7 years, (premium x .90) + 3% interest

38. Equity Indexed Annuity Let’s look at an example: $100,000 in premium; $0 withdrawals Initial Index Value= 278.15 (Last 4 quarters end value/4 - Issue Date Value)/Issue Date Value (430.15+591.75+603.05+620.85)=2245.8 / 4= 561.45-278.15= 283.30/278.15=101.85% Participation Rate = 80% (100,000) x (101.85%) x (80%) = $81,480 index increase Initial Premium (100,000) + Index Increase ($81,480) Value at end of term = $181,480

39. Equity Indexed Annuity Hypothetical Accumulation of Equity Indexed Annuity: (Based on 80% participation rate) 12/31/80 - 12/31/87 1981 - 1988 1982 - 1989 1983 - 1990 1984 - 1991 1985 - 1992 1986 - 1993 1987 - 1994 1988 - 1995 AVERAGE: 91.57% 96.58% 107.06% 81.79% 105.52% 77.64% 70.93% 66.67% 81.73% 86.61%

40. Equity Indexed Annuity • Where do you begin looking for clients? • Start with some general characteristics such as a commitment to long-term obligations and a financial objective of growth and safety rather than liquidity. A Farmers Annuity may be perfect for: • Non-risk takers • Inflation Fighters • Profit Takers • Conservative Prospects • Retirees or Job Changers • Retirement Planners • Indecisive Individuals

41. Equity Indexed Annuity • Who can sell a FEIA? • First of all, you must qualify to sit for the Advanced Life and Financial Services (ALFS) exam. To qualify, you must: • Have 900 life production count or 15 I&P qualified policies in the most recent 12 month period. • Have a LLR equal or better than 8.5%. • Complete the ALFS exam with a grade of 75 or better. • Pass the product specific exam.

42. Variable Annuity Farmers offers a variable annuity through Farmers Financial Solutions. The agent must hold a series 6 & 63 license in order to sell this product. The customer has several investment options during the accumulation phase. All other basic annuity rules apply.

43. Annuity Basics

44. Annuity Basics TRANSFERS A transfer is one method of moving funds from one IRA or SEP to another without recognizing a taxable event. Transfers can be made within one company or between a different financial institution. The transfer is handled directly by the company(s) involved and the contract owner does not personally handle any of the funds. Non-qualified annuities cannot use a transfer.

45. Annuity Basics ROLLOVERS A rollover is a means of moving funds from one qualified account (IRA, SEP) to another without recognizing a taxable event. The advantages of a rollover as opposed to a transfer is the timeliness of the transaction. Since the individual personally terminates the old account and takes receipt of the funds, it is possible to complete the transaction more quickly. However, funds must be rolled over within 60 days.

46. Annuity Basics • 1035 EXCHANGES • This is an exchange-in-kind for certain insurance policies and non-qualified annuity contracts as permitted under Section 1035 of the IRS Code. A 1035 is not allowed from an IRA, SEP or TSA. • A 1035 can be processed for: • A non-qualified annuity exchanged for non-qualified annuity • A life insurance policy exchanged for a FFUL. • An endowment contract exchanged for a non-qualified annuity contract.

47. Annuity Distribution

48. Annuity Distribution LIFE ONLY: Provides for an income during the lifetime of the annuitant only. The contract terminates with the last regular payment prior to the death of the annuitant. This option provides the largest income payable (if the ann. lives). LIFE INCOME WITH PERIOD CERTAIN: Provides guaranteed monthly payments for the lifetime of the annuitant. Should annuitant die prior to the end of the guaranteed period, payments to the beneficiary will be made: 1. Any guaranteed annuity payments remaining will be continued to the end of the guaranteed period. 2. If the beneficiary dies while receiving such payments, the remaining payments will be payable to the beneficiary’s estate.

49. Annuity Distribution JOINT AND SURVIVOR: Provides for an income during the lifetime of two persons. If this option is desired, an additional election must be made prior to the annuity commencement date to determine the amount of the annuity that will continue during the lifetime of the survivor. JOINT AND FULL: The annuitants will receive a lifetime income. Upon the death of either, the surviving annuitant will continue to receive a lifetime income with no reduction in the amount. JOINT AND HALF: Same as Joint and Full; however, the survivor will only receive half of the amount which was being received after death. *Although an annuity option may be changed prior to commencement date, it cannot be changed after the annuity payments start.

50. Annuity Submission