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Fixed-Indexed Annuities — A Hypothetical Example

The following example will illustrate how the various methods of computing the amount credited to a contract might operate.

Assumptions:

  1. Initial annuity Investment: $50,000
  2. Date of annuity Investment: May 30th, Year 0
    • Market Index, May 30th, Year 0: 1,422
    • Market Index, May 30th, Year 1: 1,600
    • Market Index, May 30th, Year 2: 1,300
    • Market Index, May 30th, Year 3: 1,940
    • Market Index, May 30th, Year 4: 2,220
    • Market Index, May 30th, Year 5: 1,700

Example 1:

Annual Reset with 100 % Participation and 16% Cap Rate

End of

Computation

Contract Value

Year 1:

1,600-1,422 = 178; 178/1,422 = 12.5% gain

$50,000 x 1.125 = $56,250

Year 2:

1,300-1,600 = negative number = market loss

$56,250 (no drop in value)

Year 3:

1,940-1,300 = 640; 640/1,300 = 49.2% gain;

$56,250 x 1.16 = $65,250

Year 4:

2,220-1,940 = 280; 280/1940 = 14.4% gain;

2,220-1,940 = 280; 280/1940 = 14.4% gain

Year 5:

1,700-2,220 = negative number = market loss;

$65,250 x 1.144 = $74,646

Example 2:

Point-To-Point with 90% Participation Rate and No Cap Rate

End of

Computation

Contract Value

Year 5:

1,700 (end) — (1,422 (beginning) = 278
278/1,422 = 19.5% gain
19.5% x 90% x $50,000 = $8,775
$50,000 + $8,775 = $58,775

$58,775

Example 3:

Annual High-Water Mark w/ Look-Back, 100% Participation and No Cap

End of

Computation

Contract Value

Year 5:

2,220 (peak) — (1,422 (beginning) = 798
798/1,422=56.1%
$50,000 x 1.561% = $78,050

$78,050

Summary

Annual reset, 100% participation, 16% cap rate:

$74,646

Point-to-point, 90% participation, no cap rate:

$58,775

Point-to-point, 90% participation, no cap rate:

$78,050

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