. Nationwide IUL Web Ex Series Advanced IUL: Part 3 Common Misperceptions of IUL 1For Insurance...

.

NationwideIUL Web Ex

Series

Advanced IUL: Part 3Common Misperceptions of IUL

1For Insurance professional use only

Disclosure

• Life Insurance issued by Nationwide Life Insurance Company and/or Nationwide Life and Annuity Insurance Company.

• Guarantees are subject to the claims paying ability of Nationwide.

• As your clients' personal situations change (i.e., marriage, birth of a child or job promotion), so will theirlife insurance needs. Care should be taken to ensure this product is suitable for their long-term lifeinsurance needs. They should weigh any associated costs before making a purchase. Life insurance hasfees and charges associated with it that include costs of insurance that vary with such characteristics of theinsured as gender, health and age, and has additional charges for riders that customize a policy to fit their individual needs.

• Riders may be known by different names in different states, may not be available in every state and have an additional charge associated with them.

• Indexed universal life insurance policies are not stock market investments, do not directly participate in any stock or equity investments, do not receive dividend or capital gains participation. Past index performance of an index is no indication of future crediting rates.

• Not a deposit Not FDIC or NCUSIF insured Not guaranteed by the institution. Not insured by any federal government agency May lose value

• © 2012 Nationwide Financial Services, Inc. All rights reserved

2For Insurance Professional Use Only - Not for distribution with the public

FLM-0811AO

Nationwide YourLife® Indexed UL

33

S & P 500® is a trademark of Standard & Poor's and has been licensed for use by Nationwide Life Insurance Company and Nationwide Life and Annuity Insurance Company. Nationwide YourLife® Indexed UL is not sponsored, endorsed, sold or promoted by Standard & Poor's and Standard & Poor's makes no representation regarding the advisability of investing in the Product.

NASDAQ®, OMX®, NASDAQ OMX®, NASDAQ-100®, and NASDAQ-100 Index® are registered trademarks of The NASDAQ OMX Group, Inc. (which with its affiliates is referred to as the "Corporations") and are licensed for use by Nationwide Life Insurance Company or Nationwide Life and Annuity Insurance Company. Nationwide YourLife® Indexed UL has not been passed on by the Corporations as to their legality or suitability. Nationwide YourLife® Indexed UL is not issued, endorsed, sold, or promoted by the Corporations. The Corporations make no warranties and bear no liability with respect to the product.

The "Dow Jones Industrial AverageSM" is a product of Dow Jones Indexes, the marketing name and a licensed trademark of CME Group Index Services LLC ("CME"), and has been licensed for use. "Dow Jones®", "Dow Jones Industrial AverageSM" and "Dow Jones Indexes" are service marks of Dow Jones Trademark Holdings, LLC ("Dow Jones") and have been licensed for use for certain purposes by Nationwide Life Insurance Company or Nationwide Life and Annuity Insurance Company. Nationwide YourLife® Indexed UL based on the Dow Jones Industrial AverageSM is not sponsored, endorsed, sold or promoted by CME Indexes, Dow Jones or their respective affiliates, and CME Indexes, Dow Jones and their respective affiliates make no representation regarding the advisability of trading in such product(s).

For Insurance Professional Use Only - Not for distribution with the public FLM-0811AO

• All competitive information is believed to be current as of January 2013 for NLG; June 2013 for IUL. Information was compiled from the latest company software. American General WinFlex Rev. 122012; Prudential 43.00; Hartford 12.5.5; AVIVA 2.95.0.55; Penn Mutual Web Illustrator 1/8/13; Lincoln 16.0; Pacific Life 13.10.4777.24551; John Hancock 9.0.1; and ING 2012.04.00.00

• All information presented is reliable as at the date of comparison and Nationwide has made every effort to make sure it is reliable; however, it's possible that there are differences between the products compared which are not reflected and/or of which we are unaware. For this reason, its completeness and accuracy cannot be guaranteed. These are mere hypothetical scenarios and not intended to represent any specific client or situation.

IMPORTANT BENCHMARKING

INFORMATION

AgendaIUL Hedging and what can cause companies to reduce Cap rates?

What to look for when you see high Cap rates?

Annual Point to Point example

Nationwide’s YourLife ® Indexed UL Description & Benchmarking Examples

Monthly Averaging is different from Monthly Cap

Guaranteed Floor compared to Cumulative Guarantee

Pro Rata Crediting compared to End Point Crediting (Impact on Distributions)

Illustrating IUL’s

Understanding IUL Statements

Variable Loans

Nationwide’s YourLife® IUL Strengths


What occurs in IUL Hedging Transaction?


Net Premium$1,000

$950.00 General Account

General Account Accumulates to

$1,000This supports

Guaranteed Floor

$50.00 Cost of Options

Options This represents potential growth

and will only pay up to the

Cap

Hypothetical Example:

• Allocate: 100% to 1 year Indexed Interest Strategy Account 0% Guaranteed Floor; 12% Cap; S&P 500®

• Investment Bank gives Quote – for the cost of 12% Cap & 0% Floor: 5%

Gross Premium

$1,100

When could IUL Cap rates be reduced?

What could cause a company to lower Cap Rates?• Insurance Companies’ Budget – Earnings impacted by General

Account Investments• Cost of Hedge (the Price of Options) – Impacted by the Markets

Hypothetical Example


Earnings for Hedge Budget

5%

• 5%

• 4%

• 5%

Hedge Cost 5%

• 5%

• 5%

• 6%

Cap Rate12%

• 12%

• Cap lowered

• Cap lowered

What to look for when you see high Cap

rates

When You see High Cap rates (14% or higher) including No Cap rate (un-capped), you may find:

• Participation Rate less than 100%

• Bond included in Underlying Index Blend

• Segment Maturity of more than 1 year

• Spread (percentage subtracted from credit applied)

• Daily Averaging or Monthly Averaging Crediting Method

• Segment Charge for the Crediting Method

• Higher base policy charges


Common Misperceptions in IUL


Perception True/False

Comment

Insurance companykeeps index credit that is above Cap rate? For example: Underlying Index grew by 15% and Cap rate of 12%

False Insurance company would purchase package of options to match the 12% Cap and therefore not receive anything above the 12%.

The base policy charge structure could be as impactful as indexed interest strategy selected

True Do not forget to review the competitiveness of the base policy charges of the IUL product

Dividends are included in tracking the performance of the underlying index

False Since the insurance company is not purchasing stocks of the index(s), they are not receiving dividends.

A company could do this, but the cost of these options would likely be more impacting Cap rates

Example: Spouses with Policy Issued 1

Month ApartHypothetical Example Annual Point to Point:• Wife’s policy issued September: Index Credited 12% at maturity

• Husband’s policy issued October: Index Credited 0% at maturity

Assumptions: S&P 500®, 12% Cap Rate, 0% Guaranteed Floor


Nationwide’s YourLife® IUL


Comparing IUL’s: Solving for Premium

at 6%


Company Premium Target Premium

Rolling TP’s

John Hancock-Protection IUL $9,637 $9,390 No

Nationwide – YourLife Indexed UL $10,571 $21,788 Yes

Axa-Athena Indexed UL II $11,100 $20,130 Yes

Prudential-Index Advantage UL $11,351 $10,880 Yes

Hartford-Frontier Indexed UL $11,586 $20,800 Yes

Pacific Life-Indexed Accumulator 4 $11,866 $23,900 Yes

Lincoln-LifeReserve IUL Protector $11,957 $14,800 Yes

ING-Indexed UL-Global Choice $12,387 $22,080 Yes

Aviva-Advantage Builder IV $12,473 $10,037 Yes

Penn Mutual-Accumulation Builder II IUL $12,596 $19,551

Yes

Scenario: Male, 50, NTP, $1 million Face amount, Solve to Endow Premium age 120

Comparing IUL’s: Solving for Premium

at 6%


Company Premium Target Premium Rolling TP’s

John Hancock-Protection IUL $19,630 $21,450 No

Nationwide-You’re Life Indexed UL $21,151 $32,288 Yes

Hartford-Frontier Indexed UL $21,671 $34,500 Yes

Axa-Athena Indexed UL II $22,364 $37,560 Yes

Lincoln-LifeReserve Indexed UL Protector $23,497 $28,300

Yes

Pacific Life-Indexed Accumulator 4 $22,622 $38,990 Yes

ING-Indexed UL-Global Choice $23,609 $32,160 Yes

Prudential-Index Advantage UL $23,712 $23,460 Yes

Aviva-Advantage Builder IV 23,942 $20,555 Yes

Penn Mutual-Accumulation Builder II IUL $24,889 $35,200

Yes

Scenario: Male, 60, NT, $1 million Face amount, Solve to Endow Premium age 120

Monthly Averaging is Different from

Monthly Cap

Monthly Averaging: each month the changes of the index(s) are recorded. At the end of the segment period the average of these values (added together & divided by 12) are compared to initial value to determine the rate credited subject to the annual Cap and Participation rates.

Monthly Cap (Monthly Point-to-Point): each month the percentage change of the index(s) from the prior month are recorded. The percentage changes are subject to the Cap and Participation rate which is applied monthly. At the end of the year these values are added together to determine the credit.

Note: Nationwide offers Monthly Averaging Indexed Interest Strategy, not Monthly Caps


Crediting Method Comment

Monthly Averaging Monthly Averaging is likely to have higher utilization and recognition from advisors than the Monthly Cap.

Monthly Cap Expect to see lower Cap rates with Monthly Caps - - such as 3%-4% when compared to Monthly Averaging Cap rates.

Cumulative Guarantee vs. Guaranteed

Floor They are Not the Same

Guaranteed Floor• Minimum amount credited at each Segment Maturity• Usually 0%. Could be: 0.75%, 1% or 2%

Cumulative Guarantee (aka: “True Up” on Surrender or Alternate Policy Value)

• Minimum amount credited upon Death, Surrender or Policy Maturity• Does Not apply credit at Segment Maturity• Cumulative Guarantee could be 1%, 2%, 3%

Please note: Cumulative Guarantees also have a Guaranteed Floor (usually 0%)

Example: Underlying Index Growth 0% at Segment Maturity


Type Percent Applied at Segment Maturity

Guaranteed Floor 1% 1%

Cumulative Guarantee 3% 0%

Impact of Distributions on Crediting• End Point Crediting: Index credit is applied to any remaining value

in indexed interest strategy account(s) at segment maturity

• Pro Rata Crediting: May apply some index credit at segment maturity on amounts distributed (loans/withdrawals) prior to segment maturity

Note: Nationwide utilizes End Point Crediting method


Still Receive Index Interest Credit if take distribution prior to segment maturity?

New Premium Restrictions or Matured Segment Premium Restrictions if take unscheduled distribution?

End Point Yes, however only receive credit applied to values remaining in segment at maturity

No

Pro Rata Yes, may also receive some index credit based on the length of time the money was allocated to indexed interest strategy prior to distribution

Yes, some companies may have “Lock Out Period” which prohibits new premium from being allocated to that Indexed Interest Strategy for 1 year

Illustrating Indexed ULIllustrating IUL’s• Companies assume Various Default Illustrated Rates

• Companies assume Various Look back Periods to determine Default Rate

What rate should you use to illustrate IUL?

• Company’s Default Rate, or• Flat rate: 6%, or 7%


Term Description Usually Sometimes

Default Rate Rate company uses to hypothetically project values in illustration

6% - 8% 4.60%10%

Look Back Period Number of preceding years used in formula to determine the default rate

20 – 30 yrs 10 yrs28 yrs40 yrs

Common Misperceptions of IUL


Perception True/False

Comment

A client can transfer indexed segment values in the middle of the segment term

False You can only transfer monies out of a segment once it has matured.

Participation rates applied before Cap rates are the same as a Participation Rate applied after the Cap Rate

False Usually you will find that the Participation rates are applied before the Cap Rate

All Point to Point Crediting Methods exclusively measure 2 points in time

False Some include in their formula an averaging out the final year (such as average out 5th year)

A guaranteed Cap rate could be as low as 0%

True This is unusual, usually guaranteed Cap rates are between 2% - 4%

NLG Riders on IUL products can have allocation requirements* in order to be eligible for the guarantee

True With some companies this means allocating more to the Fixed account. And, with other companies it means allocating more to the Indexed Interest Strategy Account

*For Nationwide, the allocations must be 100% to the Indexed Interest Strategy Account(s) when selecting our optional Extended Death Benefit Guarantee Rider

Understanding IUL StatementsReflecting Index Credit on Statement• Most companies do Not reflect credit applied to Indexed Interest

Strategy for that year in the Annual Statement• A few companies send out Monthly Confirmation Statements

(including Nationwide)

Example: January 4, 2013 Policy Issued

January 15, 2013 Monies Swept from Fixed Account into Indexed Interest Strategy

---------------------------------------------------------------------------------------

January 3, 2014 Statement Reporting Period 365 days (1/4/13 – 1/3/14)

January 4, 2014 Statement Automatically Generated

(but Indexed Interest Strategy hasn’t matured yet)

January 15, 2014 Index Interest Strategy Segment Matures (too late for statement) 19For Insurance professional use only

Variable Loans

Variable Loans: Also known as Participating or Alternative Loans

• When loaned values continue to participate in the growth potential of underlying index(s) instead of being transferred to a separate loan account.

• Nationwide offers Alternative Loans with a current loan interest rate of 4.22% subject to a maximum charge capped at 8%. See advisor guide for details.

Note: Intended for clients with appropriate capital and risk tolerance. Utilizing variable loans can result in earning a lower interest rate credited to the accumulated value than the rate charged on the loan balance.

For example: if have $1,000,000 loan value and a 0% return in the underlying index(s) and 5% variable loan charge then: $50,000 is the amount the loan has grown by based on the 5% charged rate.


Variable Loan compared to “Fixed” Loan

Example

Loan Spread Example: Nationwide offers Alternative Loans (Variable) & Declared Loans

(Fixed)


Nationwide’s YourLife® Indexed UL

22

Product Highlights

For Insurance professional use only

• Low Cost Premium Solves • Accumulation & Income (Insurance Based Retirement

Planning) • Optional Extended Death Benefit Guarantee Rider (EDBG)

- Premium Based guarantees for EDBG (not shadow account) - Unlimited interest free catch up* • Policy Management Program

- Automated Premium Monitor; Automated Income Monitor

• Indemnity Long Term Care Rider (IRC Sec 7702b type)

*Note: this applies to premium patterns paid beyond the first 10 years of the policy

What we will cover next time

23

Advanced Applications of IUL (Part 4)July 23rd, 2013; 2:00 p.m. Eastern

Sales Applications• Premium Financing• IUL and Executive Bonus• IUL and Estate Planning with NLG Rider (EDBG rider)• Illustrating Variable Loans

For Insurance professional use only

. Nationwide IUL Web Ex Series Advanced IUL: Part 3 Common Misperceptions of IUL 1For Insurance...

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