Income and Capital Gains Deferred Advantages

The Paragon Asset Protection and Deferred Variable Annuity gives the policyholder the ability to carry out a self-directed investment strategy on a tax-advantaged basis with far more investment options than are currently available with conventional variable annuities in the United States. As long as the policyholder's funds remain invested in the annuity, there is no current U.S. tax liability to the investor. A withdrawal from the annuity is taxable to the holder as ordinary income to the extent gains have been realized in the account, with the remainder generally treated as a tax-free return of capital. As with all annuities, any withdrawal before age 59½ is subject to a 10% penalty tax on the gains in the account. The policyholder is permitted to direct that the separate account be invested in a number of private investment funds or through one or more independent investment managers. A policyholder is not permitted to make specific investment decisions for the separate account, but may redirect the investment strategy of the account at any time to another fund or replace the investment manager, with no tax consequences.

The following table sets out the significant benefits of tax-deferred compounding, assuming that taxes are deducted annually at the rate of 34% for the taxed numbers.

THIS ILLUSTRATION IS NOT A CONTRACT. IT IS ENTIRELY DEPENDENT ON THE HYPOTHETICAL ASSUMPTIONS IT INCORPORATES. IF INVESTMENT RETURNS ARE LESS THAN ASSUMED, OR IF MORTALITY EXPERIENCE IS HIGHER THAN ASSUMED, OR IF ADMINISTRATIVE CHARGES ARE HIGHER THAN ASSUMED, THE ILLUSTRATED CASH VALUES AND DEATH BENEFITS WILL NOT BE SUPPORTED.

PARAGON INTERNATIONAL INSURANCE LIMITED DOES NOT ANTICIPATE ANY CHANGE IN MORTALITY CHARGES OR ADMINISTRATIVE FEES OVER THE PERIOD OF ANY PROPOSED CONTRACT; HOWEVER IT DOES NOT GUARANTEE THAT CHARGES WILL NOT CHANGE.

PARAGON INTERNATIONAL INSURANCE LIMITED DOES NOT GUARANTEE AND HAS NO RESPONSIBILITY FOR INVESTMENT RETURNS.

The variable annuity can accumulate on a tax-deferred basis until age 85, at which time it must be converted to a standard, fixed payment annuity. However, the annuity can be surrendered in whole or in part at any time prior to that date. Once annuity payments commence, they are treated for U.S. tax purposes partly as returns of capital and partly as ordinary income.