Life Insurance Company of the Southwest: Single Premium Indexed and Declared Interest Deferred Annuity
SecurePlus Saver Select: Life Insurance Company of the Southwest
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Is this Annuity right for you?
LSW’s goal is to provide retirement saving and income products that truly meet your needs. We hope the following questions will help you focus on some important points to consider while you review this Disclosure.
1. Risk vs. Reward
Your savings are important. To make proper choices for your savings, you need to weigh risks versus rewards. Generally speaking, high risk savings choices subject you to the potential loss of all of part of your savings while providing the potential of high returns. Low risk savings choices, like this annuity, provide guarantees as to principal (premium) paid and as to interest credited but with expectations of lower returns than higher risk choices.
· Is a low risk savings choice consistent with your financial goals/retirement?
2. Savings Diversifications
It is generally believed that diversifying savings choices is prudent.
· Is this your only form of retirement/long-term savings?
3. Access to These Savings
Access to these savings may be an important consideration.
· Do you understand that this annuity is designed for persons who have a retirement/long-term savings horizon of at least 8 years?
· Do you expect to need access to these savings before 8 years?
o If so, do you expect to need any access to these savings in the first policy year?
o Also, if so, do you expect to need access to more than 10% of these savings each year?
4. Qualified Plan Retirement Savings
* Is your premium coming from a 403(b), 457, IRA, or other qualified retirement plan?
* If so, there are additional restrictions in these plans to accessing your savings. Do you understand access to these savings will be subject to policy terms, plan terms, and applicable tax law?
The Annuity Contract
An annuity contract has two purposes – (1) to accumulate money, and (2) to provide a distribution of the money in a lump sum or in a series of payments. Annuity contracts have guarantees regarding premium paid, interest credited, death benefit, and income amounts which distinguish them from other savings vehicles.
This annuity is tax deferred, which means all amounts in your annuity accumulate with federal income tax deferred until withdrawn or received as income. You can use this annuity to save for retirement or other long term needs and to receive retirement income for various periods including for life. It is not meant to be used to meet short-term financial goals.
How will the value of my annuity grow?
Your annuity will grow through credited interest. This annuity does not participate directly in the stock or equity investments. You are not buying shares of stock or shares in the Indexes.
Your policy will be issued the next 7^{th}, 14^{th}, 21^{st}, or 28^{th} immediately following receipt of your single premium. You may choose to allocate your single premium among six available interest accounts – the Declared Interest Account and five Indexed Interest Accounts.
A Declared Interest Account is an Interest Account for which interest is credited daily at the declared interest rate. LSW sets the rate in advance each Policy Year. The minimum annual rate will be shown in your policy.
Three of the Indexed Interest Accounts credit interest based on the movement of the S & P 500 ® Index. The remaining two Indexed Interest Accounts credit interest based on the Russell 2000® Index. Each of the Interest Indexed Accounts uses one of the two methods to calculate an Annual Percentage change in the applicable Index: the Ending Index Method or the Average Index Method. Neither method subjects your savings to market risk.
The S & P 500 ® Index and the Russell 2000 ® Index are each widely used market-value weighted price index reflecting capital growth only and excluding dividenu may make a fullds paid on their stocks. In any year, the interest rate credited to an Interest Indexed Account may be higher or lower than the interest rate credited to the Declared Interest Account (and to other traditional fixed rate annuities). The objective for an Indexed Interest Account is to provide, over the long term, a higher credited interest than what would be credited to the Declared Interest Account and other traditional fixed rate annuities. However, this is not guaranteed.
To determine Indexed Interest, LSW calculates the Annual Percentage Change in the applicable Index from the beginning of the Policy Year to the end of the Policy Year. The Annual Percentage Change is determined differently for accounts using the Ending Index or the Average Index methods.
The interest rate credited to an indexed Interest Account is the Index Rate (sometimes called the Participation Rate) multiplied times the Annual Percentage Change, the result being subject to a minimum called the FLOOR and the maximum called the Cap.
· The Index Rate can never be lass than 30%
· The Cap is guaranteed to be no less than 3%
(Each Policy Year’s rate is set
· The Fllor can never be less than zero.
(Annually in advance)
The effects of the above are: (1) if the Annual Percentage Change is negative or zero, you will not loose any of the value of your single premium paid or interest previously credited to your annuity – your interest credited would be zero (the Floor) for that year; and (2) if the Annual Percentage Change is positive, your interest credited will be determined using the Index Rate and the Cap.
How do I transfer amounts in my annuity among Interest Accounts?
Transfers between and among Interest Accounts may be made without charge only on the Policy anniversary and only after receipt of your written request for the transfer 15 days prior to the policy anniversary. No transfers are available during the policy year.
The prospective rates applicable to the transferred amounts will be the same rates as if its premium had been originally allocated to the new Interest Account.
Access to Value
Your annuity’s accumulation Value reflects your premium paid and any interest credited to your policy. During your lifetime, you may receive money from your annuity in several ways. You may make a full or partial withdrawal, or your may request that your annuities value be converted to periodic income. After the first policy year you have an annual non-cumulative right to make a 10% penalty free Partial Withdrawal.
What happens if I take out some or all of the money from my annuity?
When you take money from your annuity in the first 8 years, you may incur a Withdrawal Charge. The amount of the charge depends on how long you’ve had the annuity and how much you withdraw. Any withdrawal in the first Policy Year is subject to a Withdrawal Charge. After the first Policy Year, you may withdraw , in any one year, up to 10% of the Accumulation Value without incurring the Withdrawal Charges shown in this table
Year |
1 |
2 |
3 |
4 |
5 |
6 |
7 |
8 |
9+ |
Charge (as % of Acc. Value) |
8.25% |
8.25% |
7.25% |
6.25% |
5% |
4% |
3% |
2% |
0% |
One time during policy years two through eight, you may withdraw up to an additional 10% of the Accumulation Value without incurring withdrawal charges.
Withdrawal charges do not apply to any death Benefit paid on the death of the Annuitant.
How do I get income (payouts) from my annuity?
You can ask LSW to convert your annuities value to an income (a series of payments) at any time. If you do so after the 5^{th} Policy Year, any applicable Withdrawal Charges will be waived. You can choose how to get the income. Your annuity policy describes your options in detail. Your current choices are:
· Designated period of time: Guarantees income for the selected period, available for periods of 5 to 25 years.
· Life: Guarantees income for as long as you live.
· Life income with period certain: Guarantees income for as long as you live or for a chosen period, whichever is longer.
o If you die within the period certain, the income continues to your beneficiary for the remainder of the period certain.
o Periods certain are 30 months, 60 months, and 120 months.
· Joint and survivor life: Guarantees income for as long as you or your joint annuitant (for instance, your spouse) live.
You may be eligible to receive a higher income from this annuity than ordinarily available if you qualify for our Special Enhanced Life Income Options. Generally speaking, if you are in between the ages of 55 and 90, your annuity has been in force for 5 policy years, and you are unable to perform two of six Activities of Daily living (ADLs) without substantial assistance, you may request an income under the Special Enhanced Life Income Options. Your income choices under these options are:
· Life: Guarantees income for as long as you live.
· Life income with a period certain: Guarantees income for as long as you live or for a chosen period, whichever is longer.
o If you die within the period certain, the income continues to your beneficiary for the remainder of the period certain.
o Periods certain are 30 months, 60 months, and 120 months.
What happens after I die?
If you die before we start to pay you income from your annuity, your beneficiary can choose to receive the death benefit (never less than the premium paid, plus interest, less any withdrawals taken) as one payment or as a series of payments over time. If your death occurs after income payments have begun, any payments which remain to be paid under your payment option selection will be paid to your beneficiary.
SecurePlus Saver Select has no fees* or expenses charged against you accumulation value except for the Withdrawal Charges, if any, described previously.
Taxes
How will payout and withdrawals from my annuity be taxed?
All amounts in your annuity accumulate with federal income tax deferred until withdrawn or received as income. When you receive income or make a withdrawal, you pay ordinary income taxes on the taxable value. If you make a withdrawal before the age of 59 ½, you will be subject to a 10% federal income tax penalty unless you qualify under one of the exceptions provided by the law. Neither LSW nor any of its representatives give legal, tax, or accounting advice. You should consult your own tax advisor for tax advice.
Interest
How is interest credited to your Policy?
As explained below, Interest can be credited as Declared Interest and/or Indexed Interest
A. Declared Interest – Your money in the Declared Interest Account is credited with interest daily. LSW sets the rate in advance for each Policy Year. The rate declared for the first Policy Year and the minimum rate thereafter will be shown in your policy.
B. Indexed Interest – The five Indexed Interest Accounts that credit interest annually at the end of each Policy Year, based in part on the annual charge of the index are:
• S&P 500 Ending Index Rate Option 1
• S&P 500 Ending Index Rate Option 2
• Russell 2000 Ending Index Rate Option 1
• Russell 2000 Ending Index Rate Option 2
• S&P 500 Average Index
You may allocate your premium to any combination of the above and/or to the Declared Interest Account. Allocations must be in whole percentages.
Indexed Interest Account may differ as to the index, the method for calculating the interest, and the Rate Option Available. The Rate Options are defined by the Index Rate and Cap declared for a given Interest Account. Rate Option 1 for a given index generally has a higher Index Rate and a lower Cap that Rate Option 2 for that index.
The two Indexes available in SecurePlus Saver Select are:
• The S&P 500 index, and
• The Russell 2000 index.
These are widely used market value weighted Indexes which reflect capital growth only and do not include dividends paid on stocks included in the indexes.
The following is a more detailed description of each of the two methods for calculating indexed interest.
1. Ending Index Method – This crediting strategy is commonly referred to as the annual reset, point-to-point method. An Account that uses the Ending Index Method is credited with interest based on a formula which considers the positive change in the Index from the beginning of the Policy Year to the end of the policy Year. Interest is only credited to the account at the end of the Policy Year.
The Index Rates and Caps for the four methods that use the Ending Index Method are guaranteed never to be set less than 30% and 3%, respectively. That Index Rates and Caps that apply for the First Policy Year will be shown in your policy. Index Rates and Caps for subsequent Policy Years are declared annually in advance.
2. Average Index Method -- This crediting strategy is commonly referred to as the annually reset, point-to-daily average method. The basics of this method of crediting interest are very similar to those of the Ending Index Method. The difference is how the Annual Percentage Change is measured. For the Ending Index method, the Annual Percentage Change is the change from the index value at the beginning of the Policy Year to the index Value at the end of the Policy Year. For the Average Index Method, the Annual percentage Change is the change from the Index Value at the beginning of the Policy Year (the same beginning point as the Ending Index Method) to the average of the ending Daily Inex Values for all days during the Policy year that the market is open. Interest is only credited to an Indexed Interest Account at the end of the Policy Year.
Only one Interest Account uses the Average Index Method of calculating Indexed Interest, the S&P 500 Average Index Interest Account.
Some states charge a premium tax on annuities. A few states levy the tax when you pay the single premium. Others charge it upon withdrawal or selection of the payment option, If we must pay this tax, we will deduct it from your policy benefits.
Interest rate and Caps for this Account are guaranteed never to be less than 30% and 3%, respectively. The Index Rate and the Cap that apply for the first Policy Year will be shown in your policy. Indexed Rates and Caps for subsequent years are declared annually in advance.
3. How Interest is Calculated -- The Annual Percentage Change in the Index over the Policy Year is first expressed as a percentage gain (or loss). That percent gain is multiplied by an Index Rate, a value that LSW declares at the start of the Policy Year.
The result is then limited to a maximum percentage change called the Cap which is also declared at the start of the Policy Year. If the result is less than the Cap, the result of the multiplication is the credited interest rate for the year. If the result is greater than the Cap, the credited interest rate is the Cap.
If the change in the Index over the Policy Year is negative or zero, then no interest is credited for the Policy Year. However, and quite importantly, the value of the Indexed Interest Account is protected from the negative Annual Percentage Change (in other words, the Floor for the Interest Credited is zero). This happens because you are not investing in the Index. You are purchasing an annuity where interest can only be credited, added to your value. Amounts cannot be deducted from your Accumulation Value due to a negative Annual Percentage Change.
The starting point for the Index value for the new Policy Year is the ending Index value for the year then ended.
Table 1 shows the result of applying the Indexed Interest formula(s) is various hypothetical situations:
Year |
Index Rate |
Annual Percentage Change |
Multiplied Result |
Cap |
Floor |
Interest Credited |
1 |
70.00% |
10.00% |
7.00% |
6.80% |
0.00% |
6.80% |
2 |
70.00% |
7.50% |
5.25% |
6.00% |
0.00% |
5.25% |
3 |
50.00% |
-12.00% |
-6.00% |
7.00% |
0.00% |
0.00% |
4 |
60.00% |
17.00% |
10.20% |
6.00% |
0.00% |
6.00% |
5 |
70.00% |
8.00% |
5.60% |
5.50% |
0.00% |
5.50% |
6 |
65.00% |
-10.00% |
-6.50% |
5.50% |
0.00% |
0.00% |
7 |
65.00% |
15.00% |
9.75% |
6.00% |
0.00% |
6.00% |
8 |
70.00% |
8.00% |
5.60% |
6.00% |
0.00% |
5.60% |
9 |
70.00% |
-2.00% |
-1.40% |
6.00% |
0.00% |
0.00% |
10 |
75.00% |
7.00% |
5.25% |
5.50% |
0.00% |
5.25% |
Here is an example using the values for Policy Year 1:
Step 1: Multiply the Index Rate 9which had been declared at the beginning of the policy Year) by the Annual Percentage Change.
70% x 10% = 7.00%
Step 2: Compare this to the Cap of 6.80% (which also had been declared at the beginning of the Policy Year) and a Floor of 0.00%. The Cap is smaller, since 7.00% is greater than the Cap of 6.80%.
Step 3: The interest rate credited is limited to the Cap of 6.80%. The Interest rate credited is 6.80%.
Again, these rates are hypothetical and are provided solely for the purpose of demonstrating the variability of the rates LSW may set for and credit to an Indexed Account as well as the fluctuations that may occur in the Index.
Policy Guarantees
Your policy provides a number of guaranteed benefits as described below:
· Death Benefit – never less than the premium paid, plus interest credited, less withdrawals taken;
· Cash Value – never less than the premium paid, plus interest credited, less withdrawal taken, less a Withdrawal Charge, if any, and;
· Guaranteed Income – minimum payment amounts for various income options are provided in the policy form.
Your policy also provides a guaranteed minimum to the Death Benefit and the Cash Value. The minimum is calculated separately and is called the Policy Value. The Policy Value has the potential to increase the Death Benefit and the Cash Value that are described above. This guarantee can be valuable if you were to allocate most of your value in the annuity to Indexed Interest Accounts during multiple years of declines in the Index or Indexes.
The Policy Value equals 90% of the single premium accumulated at the Policy Value interest rate shown in your policy, less withdrawals taken.
Other Information
· Issue age limits for this annuity are owner / annuitant age 0-85 (actual age)
· This annuity is designed for people who are willing to let their savings build for at least 8 years.
· This annuity does not participate directly in any stock or equity investments. You are not buying shares of stock or shares in the Index.
· We may change your annuity contract from time to time to follow federal and state laws and regulations. If we do, we will tell you about the changes in writing.
· Right to Examine: you have a right to a complete refund of your premium paid at any time within 30 days of receiving your premium policy. To exercise this right you must return your Policy with a written request for a refund.
What Should I Know About Life Insurance Company of the Southwest?
Even when an annuity seems to be the right fit for your financial plan, you want the assurance that your money is safe. SecurePlus Savers Select is backed by the full assets of Life Insurance Company of the Southwest (“LSW”). LSW has a corporate investment policy that strongly emphasizes quality investments and safety. LSW is a life insurance company that specializes in annuity and life insurance products. LSW’s goal is to provide products that benefit policyholders regardless of market conditions.
LSW was incorporated in 1955 under the laws of