Principal Life Insurance Company Individual Disability Insurance

1. Principal Life Insurance CompanyIndividual Disability Insurance

2. This presentation is a general summary. All features, provisions and riders may not be available in all states and may be subject to state variations. Refer to the state policy and riders forms for the full definition of all policy provisions, benefits, limitations and exclusions.

3. Why Sell Disability Insurance

4. Significant Market Potential 76 Million Penetration Market Size Estimated Individual disability market-size and penetration. 25 20 15 Millions of People 16 Million 10 Penetration is minimal. 5 11 Million 0 Managers Middle Income Professionals Source: Response Analysis Corporation, 1994

5. 78 million “emerging affluent” workers # of “emerging affluent” workers with individual DI No coverage Your OPPORTUNITY Favorable Demographics 1% Source: Life Insurance Selling 3/98 There are a substantial number of individuals who are not protecting their most valuable asset… their ability to generate income!

6. Growth of Businesses on the Rise • New employer firms rose to an estimated 5.8 million in 2000, up from the 1999 level of 5.7 million* • Small firms constituted about three-quarters of the employment growth and 90 percent of the new business location growth in the 1990s* *U.S. Department of Labor and U.S. Census Bureau data, 2000

7. The Need Approximately 30% of all people aged 35 to 65 will suffer a disability for at least 90 days, and about one in seven can expect to become disabled for five years or more* *Health Insurance of America, 2000

8. The Need An estimated 120,000 employers, representing upwards of 12 million employees, would consider adding voluntary benefits to their overall benefits package in the next five years. They have not already done so because they simply have not been approached* *LIMRA International, Conning & Company, May 2000

9. The Need • 50% of U.S. households now are dependent on dual incomes* • In 2000, only 21% of Small Businesses with fewer than 100 employees planned to add LTD benefits* • *Jason Fields and Lynne Casper, “America’s Families and Living Arrangements: March, 2000.” Current Population report. U.S. Census Bureau (2001): 20-537

10. The Need And . . . during the course of a career, your clients are three and a half times more likely to be injured and need disability insurance than they are to die and need life insurance* *Health Insurance of America, 2000

11. Who Has Disability Insurance ? • Less than 4% of employees have individual disability income insurance* • Less than 30% of employees have group LTD insurance* *Response Analysis Corporation, 1994

12. Complete Disability Insurance Portfolio • Disability Income Insurance - Non-Cancelable & Guaranteed Renewable • Overhead Expense Insurance - Non-Cancelable & Guaranteed Renewable • Disability Buy-Out Insurance - Conditionally renewable with guaranteed premiums to age 65

13. HH700 Disability Income (DI) Insurance

14. DI Policy Basics • Issue Ages • Single Life: 18 - 60 • Multi-Life: 18 - 64 • Occupation Classes: 5A, 4A, 3A, 2A and A • Benefit Periods: 2 years, 5 years and To Age 65 • Elimination Periods: 30, 60, 90, 180 and 365 days

15. DI Base Policy Total Disability means solely due to Injury or Sickness: 1. During the Your Occupation Period: a. You are unable to perform the substantial and material duties of Your Occupation; and b. You are not Working. 2. You satisfy the requirements of the Claim Information section.

16. DI Base Policy 1. After the Your Occupation Period You are unable to Work in any occupation You are reasonably suited to by Your education, training and experience. 2. You satisfy the requirements of the Claim Information section.

17. Your Occupation Period Your Occupation Period options: • 2 years - built into the base policy • 5 years - available to all occupation classes • To Age 65 - available to 3A-5A occupation classes

18. Regular Occupation Rider • Available to certain 5A occupation classes • Issue ages are 18-50 • Not available to attorneys • Must have a To Age 65 Your Occupation Period and Benefit Period

19. Social Insurance Substitute (SIS) Benefit • Optional for 5A-3A occupation classes • 2A-A occupation classes must apply for a combination of base and SIS benefits to be eligible for the maximum amount available at their income level

20. Benefit Update (BU) Rider • No additional premium • Issue ages: 18-55 • Available to all occupation classes • Initial Benefit must be 75% of eligible benefit

21. Benefit Update (BU) Rider • Every 3 years • Must accept 50% of each offer to keep BU on the policy • Advance Option – if insured loses group coverage • No Cap per option / no cap per lifetime* * Up to the current Issue & Participation Limits

22. New Automatic Increase Option (AIO) Rider • Replaces Automatic Benefit Increase (ABI) Rider • No additional premium • Available on all DI standard issue policies • Issue ages: 18-55 • Available to all occupation classes

23. AIO Rider Continued • Annual increases based on CPI-U • Min.= 4% and Max.= 10% compounded • Renewable every 6 years with financial underwriting • May decline 1 of 6

24. AIO and BU Together • Available to be on the same policy with the Benefit Update rider • When AIO and BU are on the same policy, the AIO option is waived in the years of the BU option

25. Residual Disability Benefit Rider • Available to 5A - 2A occupation classes • Benefit Period matches the policy benefit period • Minimum of 50% of the Maximum Monthly Benefit paid for the first 6 months of a Residual Disability • 100% of the Maximum Monthly Benefit paid if the Loss of Earnings is greater than 75% • Not available with the Short Term Residual Disability Benefit rider

26. Residual Disability Benefit Rider Definition: 1. You are not Totally Disabled; and 2. Solely due to Injury or Sickness: a. You are able to perform some, but not all, of the substantial and material duties of Your Occupation; or b. Your ability to Work in any occupation is restricted; and c. You have a Loss of Earnings equal to or greater than 20%; and 3. You satisfy the requirements of the Claim Information section of the policy.

27. New Catastrophic Disability Benefit (CDB) Rider • Issue Ages 18-60 (Multi-life 18-64) • Available to all occupation classes • CDB elimination period must be equal to or greater than the base elimination period; 90 day minimum elimination period • CDB benefit period must be equal to or less than the base benefit period

28. CDB Rider, Cont. • The COLA rider will apply to the CDB amount, if COLA is on the policy • ABI/AIO yearly increases do not apply • BU increase will apply to both base amount and CDB amount if BU is on the policy • Increases will be based on our then current underwriting guidelines.

29. CDB Rider Definition • The CDB rider provides benefits if the Insured is catastrophically disabled. By definition, this means, solely due to an Injury or Sickness the Insured is: • ADL Disabled (unable to perform two or more Activities of Daily Living (ADL) without assistance); or • is Cognitively Impaired; or • is Presumptively Disabled

30. Activities of Daily Living • Bathing • Continence • Dressing • Eating/Feeding • Toileting • Transferring

31. CDB Monthly Benefit Amount • Requires a minimum of $500 benefit at the time of new policy issue. • Maximum benefit amount of $8,000 • Up to 100% of earned income • Cannot exceed five times (5X) the sum of the base benefit amount plus Social Insurance Substitute (SIS)

32. CDB Example

33. Extended Total Disability Benefit Rider • Available to 5A – 2A occupation classes • Issue ages are 18-50 • Benefit Factors Available: 50, 75 and 100 For example: $4,000 base + $1,000 SIS = $5,000 max. monthly benefit $5,000 x 50 (Benefit Factor) = $250,000 (Max. Aggregate Benefit) $5,000 x 75 (Benefit Factor) = $375,000 (Max. Aggregate Benefit) $5,000 x 100 (Benefit Factor) = $500,000 (Max. Aggregate Benefit

34. Additional DI Riders • Cost of Living Adjustment (COLA) • 3% or 6% compounded, no cap • Short Term Residual Disability Benefit • 6 or 12 months • Recovery Benefit • 1 or 3 years

35. Additional DI Features • Capital Sum Benefit – 12 times monthly benefit • Death Benefit – 3 times monthly benefit • Presumptive Benefit – Benefit period or lifetime if To Age 65 Benefit Period • Rehabilitation Benefit – Optional

36. Additional DI Features • Transplant Surgery Benefit • Interrupted Elimination Period • Waiver of Premium

37. Disability Income Rates • Single Life - Sex Distinct* • Multi-Life - Unisex • Smoker/Nonsmoker - Smoker rates for the following: • Cigarette use within the past 12 months • Use of a nicotine patch, gum or inhaler within the past 12 months Use of chewing tobacco, cigars or pipes is considered to be a nonsmoker classification * Unisex in Montana

38. The Employer (Multi-life) Discount Discounts 0-2 Lives 0% 3+ Lives 20% • Easy to Administer • Cost Effective • Multiple Commissions • Portable

39. The Employer (Multi-Life) Discount 90 Day Elimination Period, To Age 65 Benefit Period, To Age 65 Your Occupation Period, Residual Disability Benefit Rider, $5,000 Monthly Benefit Amount Annual Premiums Owner 1 (Male) $2,116.50 Owner 2 (Female) $2,969.00 Total $5,085.50 Assumptions: Age 40, IA, nonsmoker, 5A occupation class

40. The Employer (Multi-Life) Discount Add third life with 90 Day Elimination Period, To Age 65 Benefit Period, 5 year Your Occupation Period, $500 Monthly Benefit Amount, Residual Disability Benefit Rider Annual Premiums Owner 1 (Male) $1,796.00 Owner 2 (Female) $1,796.00 Valued Employee $ 335.60 Total $3,927.60 Savings$1,157.90 Assumptions: Age 35, IA, nonsmoker, 2A occupation class

41. Multi-Life Case Design Center • Case design center: • Illustrate individual premiums and benefit amounts • Help with case designs • Personalized pitchkits for voluntary program enrollment • New case proposals

42. Service • New business proposals • Program renewals available annually at employer request and home office approval • 3-5 day policy turnaround time • Dedicated billing and administration team for each employer

43. TeleApp Benefits • Saves producer time completing application • Client answers questions only once • Reflexive Question System means full details in the underwriting process • Eliminates phone interviews and some medical exam questions • Eliminates special questionnaires

44. TeleApp Statistics • 83% of clients prefer providing medical information over the telephone rather than in person • 80% of all DI applications are completed through the TeleApp process

45. Compensation 50% First Year Commission - 5A, 4A and 3A 45% First Year Commission - 2A and A Renewals are tiered based on production: DI FYCYears 2-5 Years 6-10 Years 11+* 0-4,999 5% 5% 3% 5,000 - 9,999 10% 7% 3% 10,000+ 15% 7% 3% * Renewals in years 11+ are contingent upon $5,000 of standard DI commissions in the prior year

46. Compensation, Cont. • Quality Business/Persistency Bonus • Paid for up to 9 years on each year of business

47. 2004 DI Quality Producer Requirements • At least $12,500 DI ICCs earned and paid in 2003 • At least 12 DI policies in force OR $40,000 annual in force DI premium • Contracted at least 1 year with Principal Life • 90% or better 2001, 2002 and 2003 DI persistency • Favorable morbidity experience for 2002 and 2003 • Less than 25% DI wastage (not takens, cancels, close outs or declines) for 2003 • At least 8 cases put in force in 2003 (a case is a policy sold to an individual, an employer sponsored case, a GSI case or a GTI case) • In good Business Conduct standing

48. DI Quality Producer Benefits • Priority handling • Higher non-medical limits • Recognition in company publications

49. Important Dates • New Automatic Increase Option and Catastrophic Disability Benefit riders launching May 19, 2003 • Approved in 42 States as of April 21, 2003 • Watch for 2nd Quarter MarKit (delivery date May 19, 2003) for complete package of marketing and education materials for the new riders • Able to illustrate with the May Symphony Software release.

50. Thank You Principal Life Insurance Company Des Moines, IA 50392