Financial Professionals Annuities overview Intra-Segment Investing with Defined Outcomes

Intra-Segment Investing with Defined Outcomes

Why use a buffer strategy within your client’s variable annuity?

Two people sitting in a meeting room with computer near them.

Our buffer series accounts are defined outcome investments. They’re designed to provide the stated buffer and participation rates if a client invests on the first day of the segment and stays invested for the full year. But investors can move their money in and out of the buffer accounts at any time—what’s known as intra-segment investing. When this happens, investors will experience a different outcome than the one defined for that segment.

This chart shows the experience of investing at three different points of time during the 12-month segment.

Point A shows the defined outcome experience of investing from the first day of the outcome period to the last day. Point B shows the experience of investing when the account has made gains, and Point C when the account has losses. Point D indicates the end of the defined outcome period.

Here’s what investors can expect from these different scenarios.

Full outcome period

A Invests for full outcome period

Investor puts money in at beginning of outcome period and keeps it invested the full year.

  • 10% downside buffer
  • 10% full market participation
  • Partial market participation above 10%
Four investor paths across the life of the investment.
Account has gains

B Invests when account has gains

The account is up 4%. When it goes down the investor takes that 4% loss before buffer kicks in.

  • 4% downside before access to buffer
  • 10% downside buffer
  • 6% remaining full market participation
  • Partial participation on gains above 6% from date of purchase
Four investor paths across the life of the investment.
Account has losses

C Invests when account has losses

The account is down 6%. This gives the investor an opportunity for more growth, but less buffer in a down market.

  • 4% remaining downside buffer
  • 16% full market participation
  • Partial participation on gains above 16% from date of purchase
Four investor paths across the life of the investment.
Rollover and reset

D Automatically rollover and reset

All three investors automatically roll over into the new outcome period and reset their buffer and participation rate.

Four investor paths across the life of the investment.

This example is hypothetical and for illustrative purposes only to show conceptually how the experience varies depending on the time the investment is started. It shows expected outcomes based on the performance of the index. We did not include fees in this example which would have reduced actual returns. Returns on these subaccounts are not guaranteed, and defined outcomes apply only if you invest at the beginning of the outcome period and hold shares until the end of the outcome period. If you invest after the outcome period begins, or sell before the end of the outcome period, you will experience different outcomes. For current rates please visit principal.com/buffer.

There is no guarantee the investment strategy will achieve the defined outcome described.

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Before investing, carefully consider the investment option objectives, risks, charges, and expenses. Contact a financial professional or visit principal.com for a prospectus or, if available, a summary prospectus containing this and other information. Please read carefully before investing.

Buffer series not available in New York and may not be available with all broker dealers.

Asset allocation and diversification do not ensure a profit or protect against a loss.

The buffer funds have characteristics unlike many other traditional investment products and may not be suitable for all investors. These strategies could limit the upside participation of the buffer fund in rising equity markets relative to other funds. The buffer provides limited protection in the event of a market downturn; the buffer fund does not provide principal protection, and an investment may experience significant losses on its investment, including the loss of its entire investment. The buffer Fund may invest in FLEX Options, which are associated with additional risks. Due to the cost of the options used by the Fund, the correlation of the Fund’s performance to that of the Index is expected to be less than if the Fund invested directly in the Index without using options and could be substantially less.

The potential return an investor can receive is subject to the upside cap and the partial participation beyond the cap. If the index grows beyond the cap, the investor will not experience the full gains. The investor will receive a percentage of any gains beyond the cap. This amount, net of fees and expenses, is the maximum return an investor can achieve over its outcome period.

Buffer and participation rates apply if investment is held from the beginning of the outcome period until the end of the outcome period. Investments can happen at any time during the outcome period; but results will vary. The buffer and participation rate will reset annually. Index returns do not reflect any fees, expenses, or sales charges.

There is no guarantee the investment options will be successful in achieving these outcomes for any outcome period. Returns may only be realized if investors hold the investment options from the beginning to the last day of the outcome period. Those who invest after the outcome period has begun, or sell prior to the end of the outcome period, will experience different returns than if the investment had been held for the full one-year segment. For current rates please visit principal.com/buffer.

Variable annuities are long-term investment products designed for retirement purposes and are subject to market fluctuation, investment risk, and possible loss of principal. Variable annuities contain both investment and insurance components and have fees and charges, including mortality and expense, administration, investment option fees. An annuity's value fluctuates with the market value of the underlying investment options, and all assets accumulate tax-deferred. Withdrawals of earnings are taxable as ordinary income and, if taken prior to age 59½, may be subject to an additional 10% federal tax. Withdrawals will reduce the death benefit and cash surrender value.

S&P 500 is a trademark of S&P Global and is used under license. The product 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.

Annuity products and services are offered through Principal Life Insurance Company. Principal Variable Contracts Funds are distributed by Principal Funds Distributor, Inc. Securities offered through Principal Securities, Inc., member SIPC, and/or independent broker/dealers. Referenced companies are members of the Principal Financial Group®, Des Moines, Iowa 50392, principal.com.