Annuities may be either fixed or variable. A fixed annuity provides for tax-deferred accumulation at a fixed rate of interest. The value of a variable annuity is dependent upon the performance of an underlying portfolio of investments such as stocks, bonds and money market accounts. Under current tax law, a contract owner is not taxed on increases in the value of an annuity contract until distributions occur, either as a lump sum, withdrawal or as annuity payments. For a lump sum payment received as a total surrender, the recipient is taxed on the portion of the payment that exceeds the cost basis of the contract.
Withdrawals are taxable up to the amount of contract earnings.
For annuity payments, the taxable portion is determined by a formula which establishes the ratio that the cost basis of the contract bears to the total value of the annuity payments for the term of the annuity contract. The above information is based upon the Company's understanding of current federal income tax law applicable to annuities in general. Purchasers are cautioned to seek competent tax advice regarding the tax consequences of annuities.