Principal Life Income Fundings Trust 18 (The Agreement Holder)


Principal Life Insurance Company
711 High Street
Des Moines, Iowa 50392-0001
(515) 247-5111

In consideration of the payment made by, or at the direction of,
Principal Life Income Fundings Trust 18
(the “Agreement Holder”)
of the Net Deposit, as described below, Principal Life Insurance Company (“Principal Life”) agreesto make payments to the person or persons entitled to them, subject to the provisions of thisfunding agreement (this “Agreement”).
This Agreement is delivered in and subject to the laws of the State of Iowa.
This Agreement is issued and accepted subject to all the terms set out in it.
This Agreement is executed by Principal Life at its Corporate Center to take effect as of the 13thday of March, 2006, which is referred to as the Effective Date, subject to the receipt by PrincipalLife or its designee of the Net Deposit (as set forth in Section 1).
/s/ Joyce N. Hoffman   /s/ J. Barry Griswell
Senior Vice President and
Corporate Secretary
  Chairman, President and
Chief Executive Officer
/s/ Leanna J. Rist
March 13, 2006

GPA 5999


     This Agreement is issued in connection with the issuance by the Trust (specified in the Annex)of Secured Notes (the “Notes”) which are identified in the annex hereto (the “Annex”) and which arebeing issued by the Trust pursuant to the Prospectus dated February 16, 2006, the ProspectusSupplement dated February 16, 2006, as from time to time amended or supplemented, and the PricingSupplement applicable to the Notes (the “Pricing Supplement”). Capitalized terms not otherwisedefined herein shall have the meanings ascribed to them in the Notes. Where used in thisAgreement, the term “Notes” shall mean the Notes secured by this Agreement as the same exist on theEffective Date, without giving effect to any amendments or modifications to said Notes effected ormade after any such Effective Date unless such amendments or modifications to said Notes have beenconsented to in writing by Principal Life.
1.   Deposit
    Principal Life agrees to accept, and the Agreement Holder agrees to pay or cause to be paidto Principal Life, for value on the Effective Date, the Net Deposit (as specified in theAnnex). All funds received by Principal Life under this Agreement shall become the exclusiveproperty of Principal Life and remain a part of Principal Life’s general account without anyduty or requirement of segregation or separate investment.
    This Agreement shall become effective only upon the receipt by Principal Life or itsdesignee of the Net Deposit.
2.   Fund
    Upon receipt of the Net Deposit, Principal Life will establish, under this Agreement, abookkeeping account in the name of the Agreement Holder, which will evidence PrincipalLife’s obligations under this Agreement.
    The Deposit deemed received (as specified in the Annex), (i) less any withdrawals to makepayments hereunder (other than Additional Amounts (as defined in theAnnex) and if applicable) and (ii) plus any interest accrued and premium, if any, pursuant toSection 7, will be referred to as the “Fund”.
    Principal Life is neither a trustee nor a fiduciary with respect to the Fund.
3.   Purchase of Notes By Principal Life.
    Principal Life may purchase some or all of the Notes in the open market or otherwise at anytime, and from time to time. Simultaneously, upon such purchase, (1) the purchased Notesshall, by their terms become mandatorily redeemable by the Trust as specified in the relatedPricing Supplement, Prospectus Supplement and/or Prospectus and (2) the Fund under thisAgreement shall be permanently reduced by the same percentage as the principal amount of theNotes so redeemed bears to the sum of (i) the aggregate principal amount of all Notes issuedand outstanding immediately prior to such redemption and (ii) the principal amount of theTrust Beneficial Interest related to such Notes. If Principal Life, in its sole discretion,engages in such open market or other purchases, then the Trust, the Indenture Trustee inrespect of such Notes, and Principal Life shall take



    suchactions (including, in the case of Principal Life, making the payment(s) necessary to effectthe Trust’s redemption of such Notes) as may be necessary or desirable to effect thecancellation of such Notes by the Trust.
4.   Entire Agreement
    This Agreement and the Annex attached hereto constitute the entire Agreement.
5.   Representations
  (a)   Each party hereto represents and warrants to the other that as of the datehereof:
  (i)   it has the power to enter into this Agreement and to consummatethe transactions contemplated hereby;
  (ii)   this Agreement has been duly authorized, executed anddelivered, this Agreement constitutes a legal, valid and binding obligation ofeach party hereto, and this Agreement is enforceable in accordance with theterms hereof, subject to applicable bankruptcy, insolvency and similar lawsaffecting creditors’ rights, and subject as to enforceability to generalprinciples of equity, regardless of whether enforcement is sought in aproceeding in equity or at law; and
  (iii)   the execution and delivery of this Agreement and theperformance of obligations hereunder do not and will not constitute or resultin a default, breach or violation of the terms or provisions of itscertificate, articles or charter of incorporation, declaration of trust,by-laws or any agreement, instrument, mortgage, judgment, injunction or orderapplicable to it or any of its property.
  (b)   The Trust further represents and warrants to Principal Life that:
  (i)   it is a person other than a natural person and is purchasingthis Agreement for the purpose of providing collateral security for securitiesregistered with the United States Securities and Exchange Commission;
  (ii)   it has been informed and understands that transfer isrestricted by the terms of this Agreement; and
  (iii)   it (a) is solely responsible for determining whether thisAgreement is suitable for the purpose intended; (b) has carefully read thisAgreement (including the Annex) before signing this Agreement; (c) has had areasonable opportunity to make such inquiries as it deemed necessary prior tosigning this Agreement; and (d) has received or had access to such



      additional information as it deemed necessary in connection with itsdecision to sign this Agreement.
    In performing its obligations hereunder Principal Life is not acting as a fiduciary, agentor other representative for the Agreement Holder or anyone else. All representations andwarranties made by the Agreement Holder and Principal Life in this Agreement shall beconsidered to have been relied upon by the other in connection with the execution hereof.
6.   Assignment of Agreement
    The following conditions must be satisfied in order to effectuate any assignment of thisAgreement:
  (i)   This Agreement may only be transferred through a book entry system maintainedby Principal Life, or an agent designated by it, within the meaning of TemporaryTreasury Regulations Section 5f.103-1(c) and Treasury Regulations Section1.871-14(c)(1)(i).
  (ii)   The Agreement Holder, and any assignee, must comply with applicable securitieslaws.
  (iii)   Principal Life has consented in writing to the proposed assignment, suchconsent not to be unreasonably withheld.
  (iv)   Principal Life shall have received from the proposed assignee a duly executedcertificate containing, in substance, the information, representations, warranties,acknowledgments and agreements set forth in this Agreement.
    Any attempted sale, transfer, anticipation, assignment, hypothecation, or alienation not inaccordance with this Section 6 shall be void and of no effect. Until such time, if any, asPrincipal Life has consented in writing to a proposed assignment, Principal Life shall notbe obligated to make any payments to or at the direction of anyone other than the personshown on Principal Life’s books and records as the Agreement Holder. Once the foregoingconditions have been satisfied with respect to an assignment, the assignee or its successorshall be deemed to be the sole Agreement Holder for all purposes of this Agreement andPrincipal Life shall promptly amend its records to reflect the assignee’s status asAgreement Holder.
7.   Payments to the Agreement Holder
    Principal Life shall pay to, or at the direction of, the Agreement Holder by the date (the“Due Date”) on which any payment becomes due in respect of the Notes secured by thisAgreement (and in any event such period of time prior to the Due Date as shall be necessaryto ensure that the Trust can fulfill its obligation to make payment in full of all amountsdue and payable under the Notes on the Due Date), an amount in the currency or currencies inwhich the Notes are denominated as specified in the Notes equal to the sum of (i) the amountof principal and/or (as the case may be) interest and/or (as the case may be) premiumfalling due in respect of the Notes on such Due Date (the “Notes Component”) and (ii) the amount of any payments owed by the Trust in respect of the TrustBeneficial Interest falling due



    on such date (the “Beneficial Interest Component”). In theevent that Principal Life fails to make payment of any such amount on or prior to the DueDate, Principal Life shall pay to or at the direction of the Agreement Holder, on demand bythe Agreement Holder, (i) if the failure relates to the Notes Component, an amount in thecurrency specified in the Notes equal to the amount of default interest (or other amount)which becomes due and payable by the Trust in accordance with the Notes as a consequence ofany delay in the Trust making the relevant payment of principal, interest or premium (as thecase may be) to the holders of the Notes and (ii) if the failure relates to the BeneficialInterest Component, such amount or default interest, if any, determined in the same manneras default interest on the Notes Component.
    Interest shall accrue on the Fund in the same amount and pursuant to the same terms asinterest accrues on the Notes secured by this Agreement and on the Trust Beneficial Interestrelated to the Notes.
    If any amount is withdrawn from the Fund in order to make a payment under this Section 7,interest will cease to be credited with regard to such amount as of the end of the dayimmediately preceding the date on which such withdrawal is made.
    All payments made by Principal Life to the Agreement Holder hereunder shall be paid insame-day, freely transferable funds to such account as has been specified for such purposeby the Agreement Holder.
    Notwithstanding anything to the contrary in this Section 7, if Principal Life shall, withrespect to any scheduled amount due and payable under any of the Notes, comply in allrespects with the requirements of this Section 7, but an event of default has occurred withrespect to the Notes and as a result payments with respect to the Notes have beenaccelerated, otherwise than by reason of any default under this Agreement by Principal Life,no Event of Default (as defined below) under this Funding Agreement shall be deemed to haveoccurred, no payments with respect to this Agreement shall be accelerated and Principal Lifewill remain obligated to make payments under this Agreement as if no event of default hadoccurred with respect to the Notes.
8.   Termination of Agreement
    Subject to the provisions of the following paragraph and the Annex, this Agreement shallterminate and cease to be of any further force or effect on the day and at the time uponwhich all amounts have been withdrawn from the Fund pursuant to this Agreement.
    Upon the occurrence of any of the following events (each, an “Event of Default”) andfollowing a written demand by the Agreement Holder, Principal Life shall pay to, or at thedirection of, the Agreement Holder all amounts that the Trust is required to pay in suchevent under the Notes and the Trust Beneficial Interest:
  (i)   Principal Life’s failure to make any payment of interest, premium (ifapplicable), installment payments (if applicable) or Additional Amounts (if and asspecified in the Annex) in accordance with this Agreement, if such failure to pay isnot corrected within seven (7) Business Days after such payment becomes due and payable;or



  (ii)   Principal Life’s failure to make any payment of principal (other than anyinstallment payment) in accordance with this Agreement, if such failure to pay is notcorrected within one (1) Business Day after such payment becomes due and payable; or
  (iii)   if Principal Life (a) is dissolved (other than pursuant to a consolidation,amalgamation or merger in which the resulting entity assumes its obligations); (b)becomes insolvent or is unable to pay its debts or fails or admits in writing itsinability generally to pay its debts as they become due; (c) makes a generalassignment, arrangement or composition with or for the benefit of its creditors; (d)institutes or has instituted against it an administrative or legal proceeding seeking ajudgment of insolvency or bankruptcy or any other relief under any supervision,rehabilitation, liquidation, bankruptcy or insolvency law or other similar lawaffecting creditors’ rights, or a petition is presented for its winding-up orliquidation, and, in the case of any such proceeding or petition instituted orpresented against it, such proceeding or petition (1) results in a judgment ofinsolvency or bankruptcy or the entry of an order for relief or the making of an orderfor its rehabilitation, winding-up or liquidation or (2) is not dismissed, discharged,stayed or restrained in each case within 60 days of the institution or presentationthereof; (e) has a resolution passed for its rehabilitation, winding-up, officialmanagement or liquidation (other than pursuant to a consolidation, amalgamation ormerger in which the resulting entity assumes the obligations of Principal Life); (f)seeks or becomes subject to the appointment of an administrator, supervisor,rehabilitator, provisional liquidator, conservator, receiver, trustee, custodian orother similar official for it or for all or substantially all its assets; (g) has asecured party take possession of all or substantially all its assets or has a distress,execution, attachment, sequestration or other legal process levied, enforced or sued onor against all or substantially all its assets and such secured party maintainspossession, or any such process is not dismissed, discharged, stayed or restrained, ineach case within 60 days thereafter; (h) causes or is subject to any event with respectto it which, under the applicable laws of any jurisdiction, has an analogous effect toany of the events specified in clauses (a) to (g) (inclusive); or (i) takes any actionin furtherance of, or indicating its consent to, approval of, or acquiescence in, anyof the foregoing acts.
    Notwithstanding anything to the contrary in this Section 8, if an event described in clause(iii) above occurs, this Agreement will automatically terminate and the amount of the Fundwill be immediately due and payable by Principal Life to the Agreement Holder, or theaccount specified by the Agreement Holder.
    Principal Life will promptly notify the Agreement Holder and the Rating Agencies in writingof the occurrence of any of (i) through (iii) above.



9.   Withholding; Additional Amounts
    All amounts due in respect of this Agreement will be made without withholding or deductionfor or on account of any present or future taxes, duties, levies, assessments or othergovernmental charges of whatever nature imposed or levied by or on behalf of anygovernmental authority in the United States unless the withholding or deduction is requiredby law, regulation or official interpretation thereof. Unless otherwise specified in theAnnex, Principal Life will not pay any additional amounts to the Agreement Holder in theevent that any withholding or deduction is so required by law, regulation or officialinterpretation thereof, and the imposition of a requirement to make any such withholding ordeduction will not give rise to an Event of Default or any independent right or obligationto redeem this Agreement.
10.   Currency
    Except as may be specifically noted in the Annex, the Net Deposit and all payments underSection 7 of this Agreement shall be made using the currency or currencies as specified inthe Notes.
11.   Tax Treatment
    Principal Life and the Agreement Holder agree that this Agreement shall be disregarded forU.S. Federal income tax purposes. Principal Life and the Agreement Holder further agreethat if this Agreement is not so disregarded, it will and is intended to be treated as adebt obligation of Principal Life issued in registered form within the meaning of TreasuryRegulations Section 1.871-14(c)(1)(i), except to the extent provided in Treasury RegulationsSection 1.163-5T (or any subsequent similar regulation).
12.   Amendment and Modification
    This Agreement may be amended or modified in whole or in part, at any time and from time totime, for any period or periods (a) by mutual written agreement by such officers ofPrincipal Life, the Agreement Holder and, where such Agreement Holder is the IndentureTrustee upon an assignment by way of security of this Agreement by the Trust, the Trust and(b) without the consent of any other person affected thereby.
13.   Notice
    Except as otherwise provided herein, all notices given pursuant to this Agreement shall bein writing, and shall either be delivered, mailed or telecopied to the locations listedbelow or at such other address or to the attention of such other persons as such party shallhave designated for such purpose in a written notice complying as to delivery with the termsof this Section 13. Each such notice shall be effective (i) if given by telecopy, whentransmitted to the applicable number so specified in this Section 13 (if required herein,such notice shall also be sent by mail, with first class postage prepaid), (ii) if given bymail, three days after deposit in the mails with first class postage prepaid, or (iii) ifgiven by any other means, when actually delivered at such address.



If to Principal Life:
Principal Life Insurance Company
711 High Street
Des Moines, Iowa 50392-0001
Attention: General Counsel
Telephone: (515) 247-5111
Telecopy: (515) 248-3011

Principal Life Insurance Company
711 High Street
Des Moines, Iowa 50392-0001
Attention: Jim Fifield, Counsel
Telephone: (515) 248-9196
Telecopy: (866) 496-6527

If to the Agreement Holder:
Principal Life Income Fundings Trust 18
c/o U.S. Bank Trust National Association
100 Wall Street, 16th Floor
New York, NY 10005
Attention: Thomas E. Tabor
Telephone: (212) 361-6184
Facsimile: (212) 809-5459

with a copy to:
Citibank, N.A.
Citibank Agency and Trust
388 Greenwich Street, 14th Floor
New York, NY 10013

Attention: Nancy Forte
Telephone: (212) 816-5685
Telecopy: (212) 816-5527

14.   Business Day
    For purposes of this Agreement, “Business Day” means any day that is a Business Day asspecified in the Notes or the Indenture.
15.   Business Day Convention
    If the date on which any payment is due to be made under this Agreement shall occur on a dayon which is not a Business Day, such payment shall be made in accordance with the BusinessDay Convention as specified in the Notes or the Indenture.



16.   Jurisdiction
    The parties to this Agreement hereby consent to the non-exclusive jurisdiction of any Stateor Federal Court of competent jurisdiction located within the State of New York, in theBorough of Manhattan, in connection with any actions or proceedings arising directly orindirectly from this Agreement.
17.   Waiver
    The obligations of Principal Life or the Agreement Holder under this Agreement may be waivedonly in writing by the party to this Agreement whose interests are adversely affected bysuch waiver. No failure or delay, on the part of the party adversely affected, inexercising any right or remedy hereunder shall operate as a waiver thereof.
18.   Tax Redemption.
    If a Tax Event (defined below) occurs, Principal Life will have the right to redeem thisAgreement by giving not less than 30 and no more than 60 days prior written notice to theAgreement Holder and by paying to the Agreement Holder an amount equal to the Fund. Theterm “Tax Event” means that Principal Life shall have received an opinion of independentlegal counsel stating in effect that as a result of (a) any amendment to, or change(including any announced prospective change) in, the laws (or any regulations thereunder) ofthe United States or any political subdivision or taxing authority thereof or therein or (b)any amendment to, or change in, an interpretation or application of any such laws orregulations by any governmental authority in the United States, which amendment or change isenacted, promulgated, issued or announced on or after the Effective Date of this Agreement,there is more than an insubstantial risk that (i) the Trust is, or will be within 90 days ofthe date thereof, subject to U.S. federal income tax with respect to interest accrued orreceived on this Agreement or (ii) the Trust is, or will be within 90 days of the datethereof, subject to more than a de minimis amount of taxes, duties or other governmentalcharges.



This Annex will become effective as of the Effective Date, subject to the requirements of Section 1.
  Principal Life Income Fundings Trust 18
Net Deposit:
  The Net Deposit is $300,000,000.00.
  Regardless of the amount of the Net Deposit, the Depositis deemed to be $300,000,015.00
Bank and Account:
  Wells Fargo Bank Iowa, N.A.
For credit to Principal Life Insurance Company

Title of Notes:
  Principal Life Income Fundings Trust 18 SecuredMedium-Term Notes Due September 15, 2007.



By:   /s/ Roger Lay

Name:   Roger Lay

Title:   Managing Director


By:        U.S. Bank Trust National Association,not in its individual capacity, but solely in itscapacity as trustee
By:        Bankers Trust Company, N.A.,under Limited Power of Attorney, dated February 16, 2006.

By:   /s/ Diana L. Cook

Name:   Diana L. Cook

Title:   Vice President