Frequently asked questions

Yes. The buyer should pay special attention to the ratings given to life insurance companies. The major rating agencies, such as A.M. Best and Standard & Poor's, use their own individual rating criteria to grade an insurance company’s financial strength. Since the federal government does not guarantee life insurance products, the financial strength of the insurance company should be considered in evaluating risk.

Rating Definitions:

Standard & Poor's

Best's Ratings

Financial Strength Rating

Secure Best's Rating

AAA

Extremely Strong

Very Strong

Berkshire Hathaway Life Insurance Company of Nebraska (AA+)

Strong

BBB

Good

Marginal

Weak

CCC

Very Weak

Extremely Weak

Regulatory Supervision

10.

Not Rated

A++

Superior

Berkshire Hathaway Life Insurance Company of Nebraska

A+

Superior

Excellent

A-

Excellent

B++

Very Good

B+

Very Good

Vulnerable Best's Ratings

Fair

B-

Fair

C++

Marginal

C+

Marginal

Weak

C-

Weak

Poor

Under Regulatory Supervision

In Liquidation

10.

Rating Suspended

How are annuities different from life insurance?

Life insurance pays your beneficiaries a substantial cash benefit should you die during the term of the policy. These "death benefits" are usually designed to be significantly more than you have paid into the policy. With life insurance you are protecting against the risk that you might die "too soon".

The purpose of an SPIA is totally different - an SPIA is designed to maximize your income during retirement, while ensuring that you cannot outlive your savings.

What circumstances lead people to invest in an SPIA?

To convert assets accumulated in a Single Premium Deferred Annuity (SPDA) to a guaranteed stream of income for retirement.
To convert 401(K) or pension plan rollovers and payouts into a guaranteed stream of income for retirement. BRK Direct does not currently offer this option.
To consolidate stocks, bonds, mutual funds or CDs and turn them into a guaranteed stream of income for retirement.
To pay deferred compensation to an employee at retirement.

What concerns should I have about buying an SPIA?

Although an SPIA can be a central element in a well-designed retirement portfolio, it is not the only place to invest. To help you decide whether an SPIA is right for you, please note these issues:

An SPIA has no cash value and you cannot borrow against it.
Once you invest in an SPIA, you will no longer have access to your investment. You should not assume that we will permit termination of your SPIA
The payments can be guaranteed for your lifetime, but when you die, depending on the settlement option you chose, there may be no assets remaining for your heirs.
If you choose a settlement option with guaranteed payments, the present value of any guaranteed payments remaining after your death will be considered an asset of your estate for estate tax purposes. While we may be able to reach an agreement with your heirs to terminate the contract, (see question 8, If I have an emergency, can I terminate my contract?) the contract has no cash value and is not surrenderable. As such, if you expect to owe estate taxes you should make sure that there are sufficient liquid funds in your estate to fulfill your obligation. Please discuss this issue with your estate planning advisor prior to purchasing an SPIA.

What questions will I answer to get a quote?

We will ask you the following questions in order to calculate your investment:

Personal Profile for you and your spouse (name, address, sex, date of birth, etc.)
How much would you like each Periodic Payment to be?
Would you like a Guaranteed Minimum Payment option?
How many Certain Payments would you like?
Would you like Life Contingent payments?
What would you like the frequency of your payments to be? (monthly, quarterly, semi-annually, or annually).
Would you like your payments to be 100% Joint and Survivor?

What benefit payment options are available?

Guaranteed Minimum Payment - Payments are guaranteed until the Payee recovers the original investment, net of premium taxes, if any. If the annuitant lives beyond that time payments will continue for the Annuitant's lifetime.
Life Only - Payments are guaranteed for life of the Annuitant only.
Certain & Life - Payments are guaranteed for your life, but for no less than the stated number of months, or years, called the Certain Period. If you should die before the end of the stated Certain Period, the beneficiary would continue to receive the payments until the Certain Period is over.
100% Joint and Survivor - Payments are guaranteed during the lifetime of two people. After the death of one, full payments continue for the lifetime of the surviving person. You can also specify a Certain Period, and if both individuals should die within the Certain Period, payments would continue to the named beneficiary for the remainder of the Certain Period.
Certain Only - Payments are guaranteed for the time period you choose, called the Certain Period. If you should die before the end of the Certain Period, the beneficiary will continue to receive the payments for the remainder of the Certain Period. These payments will be made as originally due and will not be accelerated.

Some of these options are not available in certain states. For example, if you live in Utah you must choose a minimum guaranteed option. If you live in Maryland you must choose a life contingent annuity.

How are the economics of my SPIA arrived at?

Your single premium investment will earn a return based on the U.S. Treasury Strip Rates at the time of purchase and, in the case of life contingent payments, based on our assumptions of life expectancy.
Because you are purchasing this product directly from us, expense charges are minimized and sales commissions are eliminated.

An SPIA currently incurs a state premium tax in the following states:

State	Premium Tax	Premium Tax on Qualified Annuities
California	2.35%	0.50%
Maine	2.00%	-
Nevada	3.50%	-
South Dakota^*	1.25%	-
West Virginia	1.00%	1.00%
Wyoming	1.00%	-
* 1.25% for the first $500,000, 0.8% thereafter.

If the Owner(s) of the SPIA lives in one of these states, this tax will be deducted from the Single Premium Payment before BRK Direct calculates Periodic Payments it will make under the contract.

If I have an emergency can I terminate my contract?

The SPIA product is designed to have no cash value and is non-surrenderable. While that is the rule, if you want to terminate your Contract with us at some point in the future, notify us of this desire and we will follow our underwriting rules at the time of your request. We currently honor such requests where evidence of financial hardship is clear. We arrive at a termination value by applying a market value adjustment to compensate for any changes in the interest rate environment and a factor to compensate us for the lost opportunity to earn a spread over our cost to borrow on your contract. We can make no representation to you at this time as to how the economics of a surrender request will be handled in the future, or whether in fact such a request will be granted. You should purchase this product only if you can accept the fact that the product has no cash value.

If I die prior to recovering my original investment, what will happen to my payments?

BRK Direct offers an option called Guaranteed Minimum Payment. If this option is chosen, BRK Direct will continue to make scheduled periodic payments until the cumulative payments equal your net investment. In states where a premium tax is levied on annuities, your net investment is your premium, less the state premium tax. We also offer an option that provides for a specified number of guaranteed payments to be made to your beneficiary in the event of your death. If these options are not chosen, your periodic payments will be higher, but there is no guarantee that you will recover all or part of your original investment.

10.

What is the minimum investment for an SPIA from BRK Direct?

There is a $40,000 minimum investment required. The entire premium amount must be paid prior to the contract date.

11.

Can I do a 1035 exchange on an SPIA purchased from BRK Direct?

No. An SPIA has no cash value and is non-surrenderable, therefore a 1035 exchange is not permitted from a BRK Direct SPIA to another product.

12.

Can I do a 1035 exchange to purchase a BRK Direct annuity?

Yes. You can transfer funds from an annuity provided by another insurance company. The process requires coordination between BRK Direct and your existing insurance company. Please call 1-800-786-6426 if you are interested in a 1035 exchange. BRK Direct does not accept applications for a 1035 exchange through this website.

13.

Can I purchase an SPIA from BRK Direct with funds from a Qualified Retirement Plan?

Currently, you cannot purchase an SPIA from BRK Direct with qualified funds.

14.

How does the exclusion ratio work?

If you purchase an SPIA with non-qualified after-tax dollars, the Exclusion Ratio is the percentage of your SPIA payments that you will not have to include in your income (for federal income tax purposes).

The following examples of how the Exclusion Ratio works are based on IRS Publication 939 entitled "General Rule for Pensions and Annuities".

Example 1.	You purchased an annuity with an investment in the contract of $10,800 in after-tax dollars. Under its terms, the annuity will pay you $100 a month for life. The multiple for your age (age 65) is 20.0 as shown in Table V. Table V refers to the IRS mortality table which actuarily projects the year until which an annuitant is expected to survive. In this example, the annuitant, age 65, is expected to survive until 85 (i.e., 20 years (240 months) - "the multiple for your age"). Your expected return is $24,000 (20 years x 12 x $100 payment). Your initial investment of $10,800, divided by your expected return of $24,000, equals 45.0% (Exclusion Ratio).

Example 2.	Gerald Morris bought a joint and survivor annuity. Gerald's investment in the contract is $62,712 in after-tax dollars and the expected return is $121,200. The exclusion percentage is 51.7% ($62,712 divided by $121,200). Gerald will receive $500 a month ($6,000 a year). Each year, until his initial investment is recovered, $3,102 (51.7% of his total payments received of $6,000) will be tax free and $2,898 ($6,000 - $3,102) will be included in his income. If Gerald dies, his wife will continue to receive the same monthly payments. If Gerald had not recovered all of his initial investment before his death, his wife will use the same exclusion percentage (51.7%) until the entire initial investment is recovered.

If you purchase an annuity by way of a 1035 exchange, the IRS will consider your initial investment to be your unrecovered investment from the first instrument you owned.

15.

Should I consult my tax advisor before investing in this product?

Yes. If you are concerned about how this product will work for you from an income tax or estate tax point of view, you should consult your tax advisor. BRK Direct does not give tax advice.

16.

Where do I send my application, premium payment and copy of birth certificate or passport once I have decided to invest in an SPIA?

All checks for annuities in states other than New York should be made payable to Berkshire Hathaway Life Insurance Company of Nebraska and sent to:

Berkshire Hathaway Life Insurance Company of Nebraska
Annuity Department
3024 Harney Street
Omaha, NE 68131

All checks for annuities in New York should be made payable to First Berkshire Hathaway Life Insurance Company and sent to:

First Berkshire Hathaway Life Insurance Company
Annuity Department
3024 Harney Street
Omaha, NE 68131

All checks should be accompanied by the printed Application Form generated by our Web-site and two forms of birth-date verification if you have life contingent payments as part of your Periodic Payments.

17.

Will BRK Direct sell my name and address to anyone?

No. BRK Direct will not sell your name or address to anyone.

18.

If I have further questions, can I contact someone at BRK Direct?

You can E-mail us at info@brkdirect.com or please call 1-800-786-6426.