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Glossary of Terms

1035 exchange
This refers to a provision in the Internal Revenue Code, Section 1035, which allows for the direct transfer of accumulated funds in a life insurance policy, endowment policy, or annuity contract to another similar contract without creating a taxable event, if eligibility requirements are met.

Account Balance
For the ELM^sm Index Annuity, the account balance at any time is the total of the premiums you’ve paid plus all credited interest (less withdrawals and applicable early withdrawal fees). Interest in the Fixed Account Option is credited daily. Interest in the Index Cap Option and Index Participation Option is credited once a year on the annual interest crediting date. Note that amounts withdrawn prior to the interest crediting date will not earn index interest for that year.

The ELM^sm Income Annuity has no account balance.

Annuitant(s)
This is generally the same person (or persons) as the owner who receives the income payments from an annuity contract. For an annuity contract that provides lifetime income payments, it is the annuitant's life that determines how long such payments will last.

Annuitization
The act of converting the account balance of an accumulation (or deferred) annuity (like the ELM Index Annuity) into income payments.

Annuity
An annuity is a contract issued by an insurance company that provides the option of receiving income payments for a specified period of time, such as 20 years or for the life of the annuitant. There are two types of annuity contracts: deferred (or accumulation) annuities which grow assets and permit withdrawals in a lump sum or income payments, subject to contract provisions, and income annuity contracts which are purchased specifically for guaranteed income, typically for life.

The ELM Index Annuity is a deferred (or accumulation) annuity because it may accumulate interest before being used to provide income payments or a lump sum withdrawal. The ELM Income Annuity is, of course, an example of an income annuity.

Annuity Payout Period
This is the period of time during which money is paid out of an annuity contract. Examples are 10, 15, 20 years or lifetime.

Annuity Start Date
The date on which the first income payment is made under an annuity contract.

Beneficiary
The person(s) designated to receive money upon the death of the annuitant and/or joint annuitant. All deferred annuity contracts provide a death benefit; however death benefits are an optional feature with income annuities.

CPI-U
The standard abbreviation for the Consumer Price Index for All Urban Consumers as published by the Department of Labor. It is one of the most commonly used measures of the rate of inflation. The index is based on a national survey conducted by the US Bureau of Labor Statistics that measures the average change in prices over time in a fixed market basket of goods and services, chosen to be representative of goods and services purchased by American families for day-to-day living. This may or may not reflect your actual experience with the prices of goods and services. More complete information on the cpi-u is available at: http://www.bls.gov/cpi/cpifaq.htm.

Diversification
For retirees, this refers to spreading assets across different asset categories, such as stocks, bonds, real estate, and insurance products such as fixed annuities in order to reduce risk.

Early withdrawal fee
For the ELM Index Annuity, this is a percentage of a withdrawal from the account balance which the insurer charges as a fee. This percentage varies from 7% in year one to 0% in year eight and thereafter. Note that 10% of the account value of the ELM Index Annuity may be withdrawn after the first year (non-cumulative) without a fee.

If you take your money out early, you may face early withdrawal fees. If you're not yet 59½, you may also have to pay an additional 10% income tax penalty on top of ordinary income taxes. Naturally, if you do take an early withdrawal, your death benefit and cash value will be reduced.

Please note, the ELM Index Annuity contract does not directly participate in any stock or equity investments; that withdrawals or surrenders prior to the expiration of an index period will result in no index participation for such amounts. It is also important to understand that actual returns may be less than the return of the linked index. And, possibly even negative if part, or all, of the contract is surrendered prior to the expiration of any applicable surrender period and thereby incurs an early withdrawal fee.

Federal tax laws are complex and subject to change. The information in this website is based on current interpretation of the law. Neither the company nor its representatives give legal or tax advice. Please consult your attorney or tax advisor for answers to your tax questions.

Fixed Account Option
One of the three interest accounts available in the ELM Index Annuity. The account balance in this option grows at a known interest rate. Interest is credited daily at the rate set by Nationwide, at the beginning of each contract year. For example, if the fixed rate is 4.50%, every $100,000 in the Fixed Account Option is guaranteed to grow to $104,500 by the end of the year.

Fixed Annuity
An annuity contract that guarantees that the benefits paid will not fall below a guaranteed value, no matter what option is elected. For example, in a fixed income annuity contract, your income payments are guaranteed by the insurer to never fall (i.e., they are fixed). Another example is a fixed deferred annuity, in which interest credits are guaranteed by the insurer not to fall below a guaranteed minimum amount for the entire contract period. Guarantees are subject to the claims-paying ability of the issuing insurance company.

Fixed Payments
Payments provided by an income annuity contract in which the dollar amount does not change over time, regardless of market performance or inflation.

Free Look Period
The period of time after the annuity contract is issued when the contract may be cancelled without penalty. The free look period is typically 10 or 20 days, but varies by state.

Immediate Annuity
This is an income annuity that begins income payments within one year of the payment of the premium.

Income Annuity
A contract issued by an insurance company that guarantees income payments for a specified period of time, typically for the life of the annuitant(s). The amount of the income payments depends on the annuitant’s age, and contract features (for example, inflation protection, death benefit and options selected).

Index Accounts
This term refers to the two interest account options in the ELM Index Annuity whose interest crediting is tied to the growth in the S&P 500* Composite Stock Index without dividends or capital gains. Interest credited in the Index Cap Option and the Index Participation Option is directly related to the annual performance of the S&P 500 Index. Whichever accounts you choose, your accounts will never go down in value (except for withdrawals and applicable withdrawal fees).

Index Cap Option
This is one of the three interest crediting methods offered by the ELM Index Annuity. The Index Cap Option's interest credit equals the percentage growth in the S&P 500 Index, up to a "cap" or limit. If, for example, the cap set for that year is 9.00%, and the S&P 500* Index grows by 12%, the account balance in the Index Cap Option earns only 9.00%, the maximum interest credit established by the cap. In this case, every $100,000 in this account will grow to $109,000. If, however, the S&P 500 Index had grown by 7%, your interest rate would have been the full 7%, and your $100,000 is now $107,000. If the S&P 500 Index declines, the account balance would earn no interest; but the full account balance would remain intact.

Nationwide sets and guarantees the interest crediting formula for this account. You may have the opportunity to earn more than the interest offered in the Fixed Account Option but may also earn less (even zero).

Index Participation Option
Like the Index Cap Option, this interest crediting method also links interest credits to the growth in the S&P 500 Index but using a different crediting formula. For this option, each year, Nationwide sets a "participation" percentage that is used to calculate the amount of your interest credits. If the S&P 500 Index grows by 20%, for example, and the participation percentage is set at 60%, you will earn 60% of the 20%, or 12.00% on your account balance in this option. Thus, every $100,000 earns 12.00% or $12,000. Your $100,000 has grown to $112,000. If the S&P 500 Index declines, your account does not earn interest, but the full account balance remains intact.

Inflation-protected payments
An option for the ELM Income Annuity that increases income payments annually based on changes in the Consumer Price Index (CPI-U) published by the Bureau of Labor Statistics. It's intended to help offset the effects of inflation on the dollar amount of the income benefit. The cost of this feature is reflected in the premium charged by the insurer.

Inflation Risk
This is the risk that the cost of goods and services will increase because of inflation.

Interest Account
For the ELM Index Annuity, this is the particular interest account you select from among the three account options available. You may choose to place your premium into one account or divide your premium among two accounts or all three. (Of course, the term has no meaning for the ELM Income Annuity because income annuities do not have account values).

Investment Risk
The risk that assets will lose value (for any number of reasons).

Life Annuity
This is an income annuity in which income payments last for the life of a person(s) designated as the annuitant(s).

Longevity Risk
The risk that our retirement assets eventually become insufficient to maintain the income we need to sustain us for as long as we might live.

Nationwide Financial
It is the insurance company that provides the ELM Index Annuity and receives all the premiums directly. The ELM Index Annuity contract’s guarantees are backed by the full faith and credit of Nationwide. See www.nationwide-elm.com for more information.

Premium
The payment you make to an insurance company in exchange for the benefits of an annuity contract.

Principal Life Insurance Company
Principal Life is the insurance company that issues the ELM Income Annuity and receives all premiums directly. All income and death benefit guarantees are backed by the full faith and credit of Principal Life.

See www.principal.com/retirement/incomeannuity/elm/ for more information. Another method of contact is at 711 High Street, Des, Moines, IA 50392.

Separate Account
An account established by an insurance company to hold and invest premiums paid by the contract owner. The amounts held in the account are “separate” from the company’s general account. In the event of insolvency, assets in this account are not available to the insurer’s general creditors.

Standard and Poor's Index* (S&P 500)
This is the price index of the 500 largest US Stocks maintained and published by Standard and Poor’s under the name S&P 500 Composite Stock Index. This price index reflects only the stock prices of companies in the index. It does not directly reflect dividends or other distributions to shareholders.

Withdrawal fee
See Early withdrawal fee.

* “Standard & Poor’s®”, “S&P®”, “S&P 500®” and Standard & Poor’s 500, and 500 are trademarks of The McGraw-Hill Companies, Inc. and have been licensed for use by Nationwide 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.

ELM Index Annuity is issued by Nationwide Life Insurance Company, Columbus, Ohio, a member of Nationwide Financial®.

Nationwide, Nationwide Financial, the Nationwide framemark, and On Your Side are federally registered service marks of Nationwide Mutual Insurance Company.

Elm Income Annuity is issued by Principal Life Insurance Company, a member of the Principal Financial Group®, Des Moines, IA 50392. ELM Income Group^sm is not affiliated with any member of the Principal Financial Group.