I N D E X
S O L U T I O N
A Fixed Single Premium Deferred Indexed Annuity
I I
IndexSolution II (Policy Form A-3012-N-9/06, A-3012-Q-9/06)
A Single Premium Deferred Annuity for Long-Term Accumulation
You’ve worked hard to accumulate savings and plan your financial future.
Annuities are vehicles designed to help you with long-term financial
planning. One benefit of annuities is that they offer tax-deferred
accumulation of interest, meaning you pay taxes when you withdraw
money from the annuity.
If you are looking to accumulate funds long-term or are interested
in receiving a steady stream of income payments upon retirement,
Index Solution may be an option for you. Index Solution is a single
premium deferred annuity that accumulates interest on a tax-deferred
basis until the contract matures or the death benefit is paid.
Index Solution offers you the benefits of a traditional fixed annuity
along with the flexibility to customize your annuity with several indexed
accounts to help you meet your specific desires and financial goals. With Index Solution, you have the flexibility
to choose between multiple interest crediting strategies, giving you control of how your money is allocated.
You also have access to your money through various withdrawal options.
Index Solution is a safe way to plan for your future and retirement. Index Solution offers you:
•
Access to your account value anytime after 12 months (through full annuitization, restrictions apply for
full annuitization)
•
A first year premium bonus of 3 percent of the single premium at time of contract issue
•
Guaranteed minimum interest rate for Fixed Account
•
Several interest crediting strategies, offering you flexibility
•
A death benefit
•
Tax-deferral of accumulated interest
•
Several withdrawal options
•
Annuity income options, including lifetime options
Index Solution also offers you options for interest crediting, which gives you flexibility
in managing your money:
Traditional Fixed Interest, meaning interest is credited at a rate as provided for in your contract
• Interest based on an external index, meaning interest credits are based on changes in an external index,
the Standard & Poor’s 500 Composite Stock Price Index (S&P 500®)**, without dividends.
•
When you pay your single premium, you instruct Shenandoah Life to allocate it either to the Fixed Account where
interest credits are earned based on a declared rate, and/or to one or more Indexed Accounts where interest credits, if
any, are earned based on an external index. Multiple accounts may be chosen, but if an Indexed Account is chosen, no
less than $1,000 may be allocated to any Indexed Account where interest credits are earned based on an external index.
You also have the flexibility to reallocate your account value among the available accounts on each policy anniversary
with no minimums required.
It is also important to understand the values in the Fixed Account and the Indexed Accounts.
•
Fixed account value. On each day, the value of the fixed account is calculated by looking at the value on the previous
day, subtracting any partial withdrawals (including any surrender charges and withdrawal fees) made that day, and
adding interest credits for that day. On each policy anniversary any amounts reallocated to or from the Fixed Account
are added or subtracted.
•
Indexed account value. On each policy anniversary, the value of each Indexed Account is calculated by looking
at its value on the previous anniversary, subtracting any partial withdrawals (including any surrender charges and
withdrawal fees) made during the year, and adding interest credits for that year, if any, based on an external index.
Also, any amounts reallocated to or from that Indexed Account are added or subtracted.
Although an external index may affect contract values, your Index Solution is an insurance contract, not a security,
and does not directly participate in any stock, bond, or equity investments. When you purchase an Index Solution
annuity, you are not buying shares of any stock or index. Also interest credited based on the S&P 500®** index does
not include dividends, if any, that may be paid on the stocks underlying the S&P 500®** index.
How is interest in the fixed account credited under the contract?
Shenandoah Life credits amounts in the fixed account with interest credits that are calculated and credited daily at
a set rate of interest. The guaranteed rate for this account is set at policy issue and will not be less than 1% or greater
than 3%. Shenandoah Life may credit interest in excess of the guaranteed rate.
How are interest credits based on an external index credited under the contract?
Shenandoah Life calculates and credits interest credits for each indexed account at the end of each policy year based,
in part, on changes in an external index during that policy year.
Ability to share in growth in interest credits based on an
external index
By using the various interest crediting strategies available in Index Solution,
the value of your contract can increase as the market increases because you
participate in potential gains, subject to a stated maximum or cap. We will
discuss later how these interest crediting strategies work.
Because the value of any external index varies from day to day and is not
predictable, the interest credits, if any, that are based on the external index
are not guaranteed, could be less than the interest earned in a traditional fixed
annuity, and may be zero. However, interest credits based on an external index
cannot be less than zero. It is important to remember that even if the interest
credits based on an external index are zero, you have minimum guaranteed
surrender values in your contract. Those guarantees will be explained later.
Calculating Interest Credits
There are specific formulas for calculating interest credits for each Indexed Account that are based on an external
index. Formulas take into account several factors, which are described below. Please discuss each of these features with
your agent, since these can impact the amount of interest credits, if any, that are credited based on an external index.
Index Value
This is the closing value of the external index. The external index is the Standard & Poor’s 500 Composite Stock Price
Index (S&P 500®)**, excluding dividends.
Flexibility through various interest crediting methods
You have the flexibility to choose which interest crediting methods available at the time will be applied to your account
values based on an external index. You may select one of the following two methods used to determine interest credits
based on an external index.
•
Annual Point-to-Point: Under this method, the annual interest credits are based on the change in the index value
from one policy anniversary to the next, subject to a maximum or cap. With this method, you bear the risk that gains
experienced between policy anniversaries will not be credited if the external index values decline from one policy
anniversary (year) to the next.
•
Monthly Averaging: Under this method, the annual interest credits are based on an average of the monthly index
values during each policy year, subject to a maximum or cap. Because this indexing method averages the monthly
index values throughout the policy year, it may reduce the amount of interest credits you earn when the external
index rises steadily during the policy year.
In addition to selecting the interest crediting method, you may also select whether you wish to apply the
participation rate or cap rate for the Annual Point-to-Point method. Only the cap rate is available for the
Monthly Averaging Method.
Following are examples of how the interest credits are calculated based on your choice of
interest crediting strategies.
An Index Solution contract using the Annual Point-to-Point method with a Participation Rate:
Example:
• The calculated change in the S&P 500®** from policy issue to your first policy anniversary = 9%
• The Participation Rate = 35%
• The indexed interest rate = 3.15% (9 x 0.35 = 3.15%)
An Index Solution contract using the Annual Point-to-Point method with a Cap Rate:
Example:
• The calculated change in the S&P 500®** from policy issue to your first policy anniversary = 9%
• The Cap Rate (maximum) = 7%
• The indexed interest rate = 7% (because of the cap)
An Index Solution contract using the Monthly Averaging method with a Cap Rate:
Example:
• The calculated change in the S&P 500®** based on the monthly average = 7%
• The Cap rate (maximum) = 8%
• The indexed interest rate = 7%
The Guarantees in your contract
The guarantees vary between the Fixed Account and the Indexed Accounts. The guarantees are explained below.
•
Fixed account interest - In the Fixed Account, the guaranteed minimum interest rate can vary, but will never be
less than 1% or greater than 3%. This guarantee is set at contract issue and will not change thereafter.
•
Account interest based on an external index - In the Indexed Account, the minimum interest rate is guaranteed
to never be less than zero.
•
In addition, there are guaranteed Participation Rates and/or Cap Rates on the
Indexed Account(s) in your contract. These rates may increase or decrease on each
policy anniversary for the upcoming policy year, but will never be lower or higher,
as applicable, than the guaranteed rate set forth in the contract.
•
Annual Point-to-Point with Participation Rate: the participation rate
can vary from 25% to 100%, but is guaranteed to never be less than 25%.
•
Annual Point-to-Point with Cap: the cap rate can vary, but is guaranteed
to never be less than 4%.
•
Monthly Averaging with Cap: the cap rate can vary, but is guaranteed
to never be less than 5%.
•
Guaranteed Surrender Value. This amount equals 87 1/2% of the single premium, reduced for any premium tax
and any partial withdrawals (including any surrender charges and withdrawal fees), accumulated at the guaranteed
surrender value interest rate. This interest rate is set at policy issue and will not be less than 1% or greater than 3%.
Index Solution can protect your account value in a down market while the interest crediting
strategies allow you to take advantage of the upside potential in an up market and maximize
your money!
Sharing in the Good Times:
During a good year - S&P 500®** in 1995
Month
Change in S&P 500®**
Jan
+2.43%
Feb
+3.61%
Mar
+2.73%
Apr
+2.80%
May
+3.63%
Jun
+2.13%
July
+3.18%
Aug
-0.03%
Sept
+4.01%
Oct
-0.50%
Nov
+4.10%
Dec
+1.74%
+34.10% Annual change in S&P 500®** (Annual Point-to-Point)
+19.08% Annual change in S&P 500®** (Monthly Averaging)
Based on the Annual Point-to-Point with 35% Participation Rate strategy, your annual interest rate for this account
would be 11.94%! This demonstrates how Index Solution allows you to take advantage of the gains experienced in
the S&P 500®**. So, for example, if you allocated $50,000 into the Indexed Account during this year using this interest
crediting strategy, your $50,000 would have grown to $55,970.
Based on the Monthly Averaging with 8% Cap Rate strategy, your annual interest rate for this account would be 8%,
the cap.
Stability even when the market is unstable:
During an average year - S&P 500®** in 1999
Month
Change in S&P 500®**
Jan
+4.10%
Feb
-3.23%
Mar
+3.88%
Apr
+3.79%
May
-2.50%
Jun
+5.44%
July
-3.20%
Aug
-0.63%
Sept
-2.86%
Oct
+6.25%
Nov
+1.91%
Dec
+5.78%
+19.50% Annual change in S&P 500®** (Annual Point-to-Point)
+8.23% Annual change in S&P 500®** (Monthly Averaging)
Based on the Annual Point-to-Point with 35% Participation Rate strategy, your annual interest rate for this account
would be 6.83%, giving you stability even when the S&P 500®** is fluctuating. Using the same example of a $50,000
allocation, under this interest crediting strategy, your account value would have grown to $53,415.
Based on the Monthly Averaging with 8% Cap Rate strategy, your annual interest rate for this account would be 6.83%.
Safety when the market is down:
During a negative year - S&P 500®** in 2000
Month
Change in S&P 500®**
Jan
-5.09%
Feb
-2.01%
Mar
+9.67%
Apr
-3.08%
May
-2.19%
Jun
+2.39%
July
-1.63%
Aug
+6.07%
Sept
-5.35%
Oct
-0.49%
Nov
-8.01%
Dec
+0.41%
-10.13% Annual change in S&P 500®** (Annual Point-to-Point)
-3.37% Annual change in S&P 500®** (Monthly Averaging)
Based on the Annual Point-to-Point with 35% Participation Rate strategy, your annual interest rate for this account
would be 0%, meaning you didn’t lose money when the S&P 500®** was down! In the example of a $50,000 allocation,
under this interest crediting strategy, your account value would remain at $50,000.
Based on the Monthly Averaging with 8% Cap Rate strategy, your annual interest rate for this account would be 0%.
Access to your Money
There are a number of options should you need to access money from your contract. Please note that some of these
options may involve surrender charges being subtracted from the funds you receive.
Access to your accumulation value anytime after 12 months through early annuitization:
Depending upon your age at the time you annuitize and after your policy has been in force 12 months, you may
annuitize the full accumulation value if the payments are received over a minimum set number of years (see chart
below). For example, for ages 0-80 at time of annuitization, payments must be received over a period of 10 years
or longer. This means that you would receive a payout from your account in installments over a 10-year period
or longer. By receiving payments over the required number of years, no surrender charges would be deducted from
your accumulation value. If the payments are made for less than 10 years, you may annuitize the cash value of your
account, which means that surrender charges would be deducted prior to determining the amount of the payment
you would receive.
As another example, if you are age 86 or older at time of annuitization, payments must be received over a period
of 5 years or longer in order to receive full accumulation value.
Age of Annuitant at Annuitizaton
0-80
81-85
86 and over
*
Minimum Payment Period
10* years
7* years
5 years
Five years in Florida
Partial Withdrawals:
If you take a partial withdrawal (which exceeds the penalty free withdrawal) from the contract or surrender it during
the first 10 policy years, we will apply a surrender charge. The contract is designed for people who are seeking a
long-term retirement vehicle, and you should not buy the contract for short-term purposes.
The surrender charge equals the amount withdrawn (or the accumulation value if full surrender) multiplied by the
applicable percentage in the following table:
Policy Year - Index Solution II
1
2
3
4
5
6
7
8
9
10
11
10%
9%
8%
7%
6%
5%
4%
3%
2%
1%
0%
We also reserve the right to deduct a withdrawal fee, not to exceed $25, if more than one partial withdrawal is requested
during the policy year. There are restrictions on the minimum and maximum amounts that may be withdrawn, as set
forth in the contract.
Penalty-Free Withdrawals:
We do not assess surrender charges and withdrawal fees on partial withdrawals in certain situations.
•
Beginning in the second policy year, we will not assess a surrender charge or withdrawal fee on the portion of any
partial withdrawal that, when added to previous partial withdrawals made during the same policy year, does not exceed
10% of the accumulation value at the beginning of that policy year.
•
We also will not apply a surrender charge or withdrawal fee to the portion of any systematic withdrawal of interest
from the Fixed Account made by electronic funds transfer that, when added to previous partial withdrawals made
during the same policy year, does not exceed 10% of the accumulation value at the beginning of that policy year.
Systematic withdrawals are not permitted from any Indexed Account. Systematic withdrawals are available in the
first policy year.
•
Surrender charges and withdrawal fees also may not apply to partial withdrawals if the annuitant is confined to a
nursing home or diagnosed with a terminal illness, subject to certain conditions specified in the contract.
Because we credit interest that is based on an external index at the end of each policy year, any partial withdrawal
from an Indexed Account or surrender on any day other than a policy anniversary will not receive any interest
credits that might otherwise be earned on that amount. Partial withdrawals will decrease the accumulation value,
surrender value, guaranteed surrender value, death benefit, and amount available for income payments. If the
contract is surrendered during its early years, the surrender value may be less than the single premium paid.
What are the values under the contract?
•
Accumulation Value. This is the amount we pay upon contract maturity or
death of the annuitant. It equals the value in the Fixed Account plus the sum
of the values in each Indexed Account.
•
Surrender Value. This is the amount we pay if you surrender the contract.
It equals the Accumulation Value minus any surrender charges. However,
the surrender value will never be less than the guaranteed surrender value.
•
Guaranteed Surrender Value. This amount equals 87 1/2% of the single premium,
reduced for any premium tax and any partial withdrawals (including any
surrender charges and withdrawal fees), accumulated at the guaranteed
surrender value interest rate. This interest rate is set at policy issue and will not
be less than 1% or greater than 3%.
Income Options:
Your Index Solution contract will either pay a death benefit at the death of the annuitant or pay out the Accumulation
Value (annuitized) on the maturity date in one of several income options:
•
Income for a Specified Period - we will make payments in equal installments for a specified period of time.
•
Life Income with Guaranteed Payments - we will make payments in equal installments during the payee’s lifetime
with a stipulated number of payments guaranteed.
•
Life Income without Refund - we will make payments in equal installments during the payee’s lifetime.
•
Income of a Specified Amount - we will make payments in equal installments of a specified amount until the
proceeds, with interest, are exhausted.
•
Joint and One-Half Survivor Life Income - we will make payments in equal installments during the joint lifetime of
the payee and his or her spouse. If the payee dies first, payment to his or her spouse will decrease to one-half of the
original amount.
You may have a number of additional questions about Index Solution. Following are some
commonly asked questions and answers to help you make the right decision for your
long-term needs.
Are there any tax consequences if I take money out of the contract or surrender the contract?
Any partial withdrawal or surrender of the contract may be subject to ordinary income taxes and, if made before age
59 1/2, a 10% tax penalty. The contract is designed for people who are seeking a long-term retirement vehicle, and
you should not buy the contract for short-term purposes. We recommend that you consult with your tax advisor for
questions regarding the tax consequences of distributions from the contract.
Are there any other charges under the contract?
We may deduct state premium taxes from the single premium if applicable.
Can I reallocate the values in the fixed account and the accounts earning interest credits based on an
external index?
You may request that on the next policy anniversary we reallocate the accumulation value among the Accounts we offer
at that time. Any request must be in a form satisfactory to us and must be received at our Home Office no more than 60
business days but at least 5 business days prior to the next policy anniversary. We will effect any reallocation changes to
or from an Indexed Account only after any interest credits have been applied. If we discontinue an account, we can
require that you reallocate the account value in the discontinued account on the policy anniversary.
What happens if I cancel the contract?
You may cancel the contract by returning it to our Home Office or your agent within 20* days after receipt of the
contract. We will cancel the contract and return the single premium. If you cancel the contract after 20 days have
passed, we may assess a surrender charge and withdrawal fee.
Issue ages:
Nonqualified.....0-80 (age last birthday) (0-78 in Indiana)
Qualified.........18-80 (age last birthday) (18-78 in Indiana)
Minimum Premium:
Nonqualified.....$5,000
Qualified.........$2,000
Qualified sales for IRA, SEP and ROTH IRA only.
*
This time period may be longer, please see your contract for details.
**
“Standard & Poor’s ®, “S&P ®”, “S&P 500 ®”, “Standard & Poor’s 500” and “500” are trademarks of The McGraw-Hill
Companies, Inc. and have been licensed for use by Shenandoah Life Insurance Company. The Product is not sponsored,
endorsed, sold or promoted by Standard & Poor’s and Standard & Poor’s makes no representation regarding the advisability
of purchasing the Product.
About Shenandoah Life
Shenandoah Life Insurance Company has been serving the needs of our customers for more than 90 years.
We are a well-respected mutual company licensed in 31 states and the District of Columbia. While size alone
is not a guarantee of financial stability, Shenandoah Life has more than $1.9 billion in assets and $15 billion
of insurance in force (source: 2007 audited annual financial statements).
2301 Brambleton Avenue, S.W. • Roanoke, Virginia 24015
800-848-5433 • 540-985-4400 • www.shenlife.com
Form 5843 - Rev. 10/08