Guide
to
Great American Life®
Fixed-Indexed Annuities Platinum Series
B1211705NW
What is a fixed-indexed annuity? A fixed-indexed annuity from Great American Life Insurance Company® is a deferred annuity with multiple interest crediting strategies. Here’s what that means: • Annuities are contracts in which an insurance company will make a series of payments at regular intervals in exchange for one or more Purchase Payments that you have made; • Deferred indicates that there is a period of time between when you make your Purchase Payments and the time when annuity benefit payments begin. This is commonly referred to as the contract’s accumulation period; • Multiple interest crediting strategies indicates that you may, while in the deferred period, assign amounts among strategies that credit interest in various ways. Some strategies may have interest rates that are declared at the beginning of a term, fixed for that term and credited daily. Other strategies may be credited interest at rates determined, in part, by an external index, such as the S&P 500®1, and are credited at the end of the term. When you buy a fixed-indexed annuity you own an insurance contract. You are not buying shares of any stock or index.
Is a fixed-indexed annuity right for me? A fixed-indexed annuity isn’t the right solution for everyone. However, there are many conditions that might make a fixed-indexed annuity appropriate for you. Learn more about fixed-indexed annuities if: • You are interested in the potential to earn rates higher than those traditionally available from fixed annuities. • You like the idea of receiving interest at a rate determined, in part, by the growth of an index. • You need a long-term financial vehicle. • You would like to receive income that can be guaranteed to continue as long as you live.
“Standard & Poor’s®” and “S&P 500®” are trademarks of The McGraw-Hill Companies, Inc. and have been licensed for use by Great American Life Insurance Company®. Great American Life® products are not sponsored, endorsed, sold or promoted by Standard & Poor’s, and Standard & Poor’s makes no representation regarding the advisability of purchasing this product. The S&P 500 Index is a market-value weighted price index which reflects capital growth only and does not include dividends paid on stock.
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What makes a fixed-indexed annuity unique? A fixed-indexed annuity is a variation of a traditional fixed annuity. Both products credit interest to the amounts held in the annuity contracts. The uniqueness associated with a fixed-indexed annuity is found in how the interest rate is determined. A fixed-indexed annuity has two strategies for determining the crediting rate. Like a traditional fixed annuity, a Declared Rate Strategy is one where the Company announces the interest rate in advance, and it is credited daily throughout the term. A fixed-indexed annuity, however, also offers Indexed Strategies. An Indexed Strategy is one where the interest crediting rate is determined according to a formula and is applied on the last day of the term. It is referred to as an Indexed Strategy because the formula is based, in part, on the change in a referenced index. Great American Life® fixed-indexed annuities give you the opportunity to re-assign your Account Value by selecting among the available Declared Rate and Indexed Strategies. With this opportunity, you have the ability to make selections based on your financial needs.
Fixed-Indexed Strategy Selection
Declared Rate Strategy
Indexed Strategy
Credits interest at a rate declared in advance of a term
Credits interest at a rate based, in part, on the growth of an index during a term
Can I lose money with a fixed-indexed annuity? The value of your Great American Life fixed-indexed annuity will never fall below your total Purchase Payments regardless of market conditions, unless you take withdrawals from or surrender your contract. This means that your principal can remain protected; plus, you have the opportunity to earn interest based, in part, on the performance of the S&P 500. Even if the S&P 500 declines over a term, no loss will be incurred. The Indexed Interest Rate will never fall below zero percent. In addition, fixed-indexed annuities guarantee a minimum value that provides protection, even if the S&P 500 declines over the course of several terms. The security of fixed-indexed annuities is made possible due to the financial strength of the insurance company issuing the annuity contract.
When does my money start accumulating interest? With Great American Life Platinum Edition fixed-indexed annuities, your Purchase Payments start accumulating interest immediately. When your Purchase Payment is received, it is put into a holding account, referred to as a Purchase Payment Account in your contract, where interest is credited daily until the beginning of a term. Terms begin on the 6th and 20th of the month. At that time, amounts in your holding account are applied to your selected strategies.
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How is my interest rate determined? Interest rates are an important feature of a fixed-indexed annuity. Interest is credited in various ways, depending on the interest crediting strategies that you choose. Great American Life® currently offers a Declared Rate Strategy, which credits interest at a Declared Interest Rate, and Indexed Strategies, which credit interest at an Indexed Interest Rate. Amounts in the holding account are credited interest daily at an interest rate that will be equal to at least the Guaranteed Minimum Declared Rate. Declared Interest Rate Interest is credited daily to the money held under a Declared Rate Strategy based on a rate set at the start of the term by the Company. This rate can vary for subsequent terms; however, the Declared Interest Rate will never be lower than the Guaranteed Minimum Declared Interest Rate stated in your contract. Indexed Interest Rate Interest is determined and credited to the amount assigned to an Indexed Strategy on the last day of the term using a formula determined by which Indexed Strategy(ies) you choose. The following Indexed Strategies are currently offered by Great American Life fixed-indexed annuities. Strategies vary by product, and future strategies may offer other options. Annual point-to-point strategy:
1. Compare the value of the S&P 500 at the beginning of a term to the value of the S&P 500 at the end of the term to find the index change. Index Change = (Ending S&P 500 Value - Beginning S&P 500 Value) ÷ Beginning S&P 500 Value
2. Next, deduct a percentage called an Index Spread. 3. Then, multiply the result by the Participation Rate. 4. The result becomes your Indexed Interest Rate, up to a maximum (called a Cap), but not less than zero.
Daily and monthly averaging strategies:
1. The percentage by which the average S&P 500 value (average daily values or average monthly values) during the term exceeds the S&P 500 value on the first day of the term to find the index change. Index Change = (Average S&P 500 Value - Beginning S&P 500 Value) ÷ Beginning S&P 500 Value
2. Next, deduct a percentage, called an Index Spread. 3. Then, multiply the index change by the Participation Rate. 4. The result becomes your Indexed Interest Rate, not less than zero. This strategy may apply a Cap.
Cap (if any)
1.
(
Index Change
2.
-
Index Spread
4.
3.
)
x
Participation Rate
=
Indexed Interest Rate
Please refer to page 6 for hypothetical examples of these strategies. Your Indexed Interest Rate, no matter which Indexed Strategy or Strategies you choose, will never be negative. 2
Index Methods Point-to-point compares the closing value of the S&P 500 on the last day of the term to the closing value on the first day of that term to determine the index change. This method may be particularly beneficial when the index is rising. Alternatively, this method may reduce the amount of interest you would earn if the S&P 500 declines just before the end of a term.
Point-to-point
Daily and monthly averaging compares the average of the closing S&P 500 values during the term to the closing value on the first day of that term to determine the index change. Averaging at the end of the term protects you against severe declines in the S&P 500. On the other hand, averaging may reduce the amount of interest you would earn when the index is rising.
Daily and Monthly Averaging
Great American Life Fixed-Indexed Annuity Glossary Cap: The maximum Indexed Interest Rate that can be credited during a term. Declared Rate Strategy: Credits interest daily at a rate declared in advance of a term. Index Spread: A percentage that may be deducted from the index change when determining the Indexed Interest Rate. Index Method: The method for measuring index change. Indexed Strategy: Determines and credits interest on the last day of a term at a rate based, in part, on the growth of the S&P 500 during a term. Participation Rate: A percentage of index change applied when determining the Indexed Interest Rate. Term: For a Declared Rate Strategy, the period of time during which the interest rate is declared and cannot be changed. For an Indexed Strategy, the period over which an Indexed Interest Rate is calculated. Great American Life strategies currently offer terms of one year.
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What is the value of my fixed-indexed annuity contract? The Account Value of your annuity is equal to the sum of the holding account value (referred to as Purchase Payment Account in the contract), the Declared Rate Strategy Value and each Indexed Strategy Value. Purchase Payment Account Value
Rate + + Declared Strategy Value
Indexed Strategy Value
=
Account Value
Here is how the Purchase Payment Account Value is calculated: 1. Take 100% of the amount in the Purchase Payment Account; 2. Subtract any amounts withdrawn, including any early withdrawal charges (referred to as Surrender Charges in the contract); 3. Add interest credited daily at a Purchase Payment Account interest rate; and 4. Subtract any applicable premium taxes and other taxes required by your state. Here is how the Declared Rate Strategy Value is calculated: 1. Take 100% of the amount assigned to the Declared Rate Strategy; 2. Subtract any amounts withdrawn, including any early withdrawal charges; and 3. Add interest credited daily at the Declared Interest Rate. Here is how the Indexed Strategy Value is calculated for each Indexed Strategy: 1. Take 100% of the amount assigned to the Indexed Strategy; 2. Subtract any amounts withdrawn, including any early withdrawal charges; and 3. Add interest credited at the Indexed Interest Rate on the last day of the term.
Calculation for Purchase Payment Account Value, Declared Rate Strategy Value and Indexed Strategy Value 1. Amounts in Strategy
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-
2. Withdrawals
3.
+
Interest Credited
-
4. Any Taxes
=
Strategy Value
What is my Guaranteed Minimum Surrender Value? The value of your annuity is guaranteed not to drop below a minimum surrender value. This Guaranteed Minimum Surrender Value (GMSV) is equal to 100% of the Purchase Payments you have made, minus any withdrawals taken, plus interest credited daily at a minimum guaranteed rate (also found in your annuity contract), less any early withdrawal charges that would apply if the contract was fully surrendered. In addition, the Guaranteed Minimum Surrender Value will not be less than the minimum values required by your state. 100% of Purchase Payments
-
Withdrawals
+
Interest at Minimum Guaranteed Rate
-
Early Withdrawal Charges
=
GMSV
Can I take withdrawals from my fixed-indexed annuity? You can take withdrawals from most fixed-indexed annuities; however, there is often a charge if amounts are withdrawn prior to the end of the early withdrawal charge period (referred to as Surrender Charge period in your contract). Great American Life® fixed-indexed annuities also have a Free Withdrawal Allowance, which allows you to withdraw 10% of your Purchase Payments during the first contract year and, thereafter, 10% of the sum of the Account Value as of the prior Contract Anniversary and any Purchase Payments received since, without incurring an early withdrawal charge. However, you should note that since Indexed Interest is credited only at the end of a term, amounts withdrawn before the end of a term will not earn any Indexed Interest. Through the Easy Systematic Payment (ESP) Program, you have the option to request regular income payments from your annuity. During the first contract year, you may withdraw an amount equal to the 10% Free Withdrawal Allowance through the Fixed Dollar Option. You may also select the Life Distribution Option after the first contract year to help meet Required Minimum Distribution (RMD) requirements imposed by IRS regulations. Naturally, payments through ESP may affect your tax-deferred growth, and systematic withdrawals will reduce the amount available under the 10% Free Withdrawal Allowance. Remember, the money you receive through these programs is subject to taxation at the time of distribution. The ESP feature is available through current company practice and may be discontinued or changed at any time. Amounts withdrawn through ESP will not be credited interest at the end of the term. Remember that fixed-indexed annuities are long-term retirement savings vehicles, and should not be bought for short-term purposes. Withdrawal provisions are created to help you deal with liquidity needs for unforeseen circumstances.
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Here’s How it Works The interest crediting aspect of a fixed-indexed annuity is best illustrated by a hypothetical situation. Let’s assume that you make a Purchase Payment of $10,000 into an annuity contract on January 6. Review the following examples to see how interest would be calculated for four different strategies.
Hypothetical Example The chart and graph below show hypothetical S&P 500 values at the close of the day for each month during a hypothetical one-year term. Note: If the market is closed, the index value from the most recent day that the market was open will be used. Beginning Point
Jan. 6
Mar. 6 Apr. 6 May 4 June 4 July 6 Aug. 3 Sept. 6 Oct. 5 Nov. 6 Dec. 6 Jan. 4
Feb.5
End Point
1,150.50 1,210.65 1,256.65 1,212.25 1,122.50 1,235.45 1,063.97 1,260.89 1,142.05 1,250.25 1,210.88 1,199.89 1,203.03
1,300.00 1,250.00 1,200.00 1,150.00 1,100.00 1,050.00
Jan. 4
Dec. 6
Nov. 6
Oct. 5
Sept. 6
Aug. 3
July 6
June 4
May 4
Apr. 6
Mar. 6
Feb. 5
Jan. 6
1,000.00
Monthly Average Value: 1,197.37 Daily Average Value: 1,186.33
Indexed Strategy:
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Monthly Averaging
Daily Averaging
Annual Point-to-Point
Monthly Averaging with Cap
with Index Spread (no Cap)
Term:
1 year
1 year
1 year
1 year
Index Spread:
0%
0%
1.50%
0%
Participation Rate:
100%
100%
100%
75%
Cap:
7%
10%
No Cap
No Cap
with Participation Rate
The example below shows the Account Value calculation for each scenario. Annual Point-to-Point
Monthly Averaging with Cap
Monthly Averaging with Index Spread (No Cap)
Daily Averaging with Participation Rate
Indexed
Indexed
Indexed
Indexed
$10,000
$10,000
$10,000
$10,000
4.57%
---
---
---
Monthly Averaging Index Change = (Monthly Avg. - Beg. Value) / Beg. Value = (1,197.37 - 1,150.50) / 1,150.50
---
4.07%
4.07%
---
Daily Averaging Index Change = (Daily Avg. - Beg. Value) / Beg. Value = (1,186.33 - 1,150.50) / 1,150.50
---
---
---
3.11%
Index Spread
0.00%
0.00%
1.50%
0.00%
Participation Rate
100%
100%
100%
75%
Account Value Calculation
Purchase Payment Index Change Annual Point-to-Point Index Change = (End Value - Beg. Value) / Beg. Value = (1,203.03 - 1,150.50) / 1,150.50
Indexed Interest Rate
Indexed Interest Rate Interest Credited Account Value
4.57%
4.07%
2.57%
2.33%
$457.00
$407.00
$257.00
$233.00
$10,457.00
$10,407.00
$10,257.00
$10,233.00
As you can see, the annual point-to-point Indexed Strategy credited an Indexed Interest Rate of 4.57%, which falls between that strategy’s Cap and zero. The monthly averaging (with Cap) Indexed Strategy credited an Indexed Interest Rate of 4.07%, which also falls between the Cap and zero. The monthly averaging with Index Spread (no Cap) Indexed Strategy credited an Indexed Interest Rate of 2.57%. The daily averaging Indexed Strategy credited an Indexed Interest Rate of 2.33%. Please refer to your Client Letter of Understanding for an early withdrawal schedule detailing the early withdrawal charges applicable to a particular Great American Life fixed-indexed annuity.
Surrender Values Fixed-indexed annuities have a Surrender Value and a Guaranteed Minimum Surrender Value (GMSV). The Surrender Value is equal to the greater of the following: • The Account Value less any withdrawal charges that would apply on a full surrender; or • The Guaranteed Minimum Surrender Value. Following the example on this page, if the contract has a GMSV Rate of 3.00%, you can determine the Surrender Value and the GMSV. Remember that the GMSV will not be less than the minimum values required by your state. Turn to the next page to see the Surrender Value calculations for these example strategies.
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Example Surrender Values Surrender Value = Account Value - Early Withdrawal Charges2 Annual Point-to-Point Example Monthly Averaging with Cap Example Monthly Averaging with Index Spread (No Cap) Example Daily Averaging with Participation Rate Example
= = = =
$10,457.00 $10,407.00 $10,257.00 $10,233.00
-
$756.56 $752.56 $740.56 $738.64
= = = =
$9,700.44 $9,654.44 $9,516.44 $9,494.36
Guaranteed Minimum Surrender Value = (100% of Purchase Payments - Withdrawals) + Interest at GMSV Rate - Early Withdrawal Charges Annual Point-to-Point Example = ($10,000.00 - $0) + ($10,000.00 x 3.00%) - $756.56 = $9,543.44 Monthly Averaging with Cap Example = ($10,000.00 - $0) + ($10,000.00 x 3.00%) - $752.54 = $9,547.46 Monthly Averaging with Index Spread (No Cap) Example = ($10,000.00 - $0) + ($10,000.00 x 3.00%) - $740.56 = $9,559.44 Daily Averaging with Participation Rate Example = ($10,000.00 - $0) + ($10,000.00 x 3.00%) - $738.64 = $9,561.36 Examples assume 8% early withdrawal charges and a 10% Free Withdrawal Allowance
How long is a term? The length of the term is specified in your contract. It is specific to each Indexed or Declared Rate Strategy as found in your contract. Great American Life strategies currently offer terms of one year. For a Declared Rate Strategy, a term is the period of time during which the interest rate is fixed. For an Indexed Strategy, a term is the period of time over which the Indexed Interest Rate is calculated.
Can I change my strategy selections? One of the unique features of a Great American Life fixed-indexed annuity is the opportunity to re-select among Declared Rate and Indexed Strategies, and apply your Account Value accordingly. Unless you make changes to your previous selections, each interest strategy will automatically renew for a new term, as long as it is still offered by the Company.
What happens to my annuity if I pass away? In the unfortunate event of the death of the contract owner, the beneficiary will receive a death benefit from the annuity. In the event of the contract owner’s death before income payments have begun, the beneficiary will be paid the Account Value or the Guaranteed Minimum Surrender Value, whichever is greater. If your spouse is the surviving joint owner or sole beneficiary, then he or she may succeed to the ownership of the annuity with all the rights and privileges of the original owner, as allowed by IRS regulations. Referred to as Surrender Charges in your contract. Surrender Charges may vary by contract.
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How can I receive payments from my annuity? Annuities can provide an income you cannot outlive. Whether you need short-term, fixed period or lifetime payments, annuity settlement options can give you a guaranteed retirement income. Annuities offer a variety of settlement options. Listed below are several of the most commonly elected retirement income settlement options • • • •
Income for a Fixed Period; Life Annuity with Payments for at Least a Fixed Period; Joint and One-Half Survivor; and Income for a Fixed Period, Not to Exceed Life Expectancy.
Is Great American Life the right company for me? At Great American Life Insurance Company®, we concentrate on one very important aspect of your life—making your future years more secure. And because we specialize in annuities, we understand how important long-term security is to your retirement. We are committed to offering products that provide financial peace of mind with safety, stability and tax advantages. Our company has one of the most solid investment portfolios in the insurance industry today. By limiting our investment risk, we maximize the security of your retirement. As of June 17, 2005, A.M. Best Company rates Great American Life® “A (Excellent)” for our financial strength, which is the third highest of 16 possible ratings. Great American Life is a subsidiary of GAFRI, which is publicly traded on the New York Stock Exchange (NYSE: GFR). GAFRI and its family of life insurers have $11.9 billion of assets under management as of December 31, 2005. Through its subsidiaries, GAFRI markets retirement annuities and other life and supplemental health insurance. Great American Life is licensed to sell products in all states (except New York), the District of Columbia, Guam, Puerto Rico and the U.S. Virgin Islands.
How do I choose a fixed-indexed annuity product? Talk with your Great American Life agent for more information about our fixed-indexed annuity products. Your agent can help you find the product that meets your needs.
For use with contract forms P1406005NW, P1406105NW, P1406205NW, P1406305NW, P1406405NW and P1406505NW. Contract form numbers may vary according to the state in which a contract is sold. Products not available in all states.
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This brochure is not intended or written to be used as legal or tax advice. It cannot be used by any taxpayer for the purpose of avoiding penalties that may be imposed on the taxpayer. It was written solely to support the sale of annuity products. The taxpayer should seek advice on legal or tax questions based on the taxpayer’s particular circumstances from an independent attorney or tax advisor.
A subsidiary of Great American Financial Resources®, Inc. P.O. Box 5420 Cincinnati, Ohio 45201-5420 (800) 854-3649 www.galic.com
Copyright © 2006 by Great American Life Insurance Company®. All rights reserved. B1211705NW
(3/06)
