Very aggressive PDA from NY Life

[Lloyds of Lubbock]

New York Life Advanced Markets Network is pleased to announce a 10% first-year interest rate on the Premium Deposit Account.1


The Premium Deposit Account (PDA), which is available at time of issue for Custom Whole Life (CWL) and limited pay Custom Survivorship Whole Life (CSWL) policies and allows clients to pay their CWL or CSWL premiums in a lump-sum while avoiding the policy becoming a modified endowment contract, will offer a first-year rate of 10% for agreements with an effective date between May 1, 2022, and July 31, 2022. Subsequent years will receive the current PDA rate of 3.50%.2 Each year, the policy's annual premium is paid from the Account using the deposit and interest earned. The rate is applied to reduce the premiums paid.



To qualify for the enhanced first-year rate, the PDA needs to be funded for at least 4 years or longer. Any PDA funded for less than 4 years will receive the current PDA rate of 3.50%.

 

[scagnt83]

Penn did this a couple of years ago if I remember right. With rates increasing, I wouldnt be surprised if more dont do it.

As an agent, I have a love/hate relationship with PDAs. Great idea, terrible execution.

Carriers wouldnt have to run 10% fire sales on the PDA if they paid even a tiny amount of comp on it.

But unless they are too young to 72(t), why in the hell am I going to use a PDA paying 3% when I can put them in a MYGA or FIA or SPIA and get paid at least 1%.

Same end result for client, and I dont get screwed out of comp. If they can afford to pay me 1% on a 7 year SPIA, they can afford to pay me 1% on a PDA deposit.

And if carriers can afford to pay 10% interest in the PDA... they could afford to pay an agent 1% or 2% in comp.

 

[Allen Trent]

Penn did this a couple of years ago if I remember right. With rates increasing, I wouldnt be surprised if more dont do it.

As an agent, I have a love/hate relationship with PDAs. Great idea, terrible execution.

Carriers wouldnt have to run 10% fire sales on the PDA if they paid even a tiny amount of comp on it.

But unless they are too young to 72(t), why in the hell am I going to use a PDA paying 3% when I can put them in a MYGA or FIA or SPIA and get paid at least 1%.

Same end result for client, and I dont get screwed out of comp. If they can afford to pay me 1% on a 7 year SPIA, they can afford to pay me 1% on a PDA deposit.

And if carriers can afford to pay 10% interest in the PDA... they could afford to pay an agent 1% or 2% in comp.

I wonder if because it is a "bank like 1099 annual product" if they can pay comp. Not sure if they can or cant. They may also think more agents would put money in it that didn't need to go in it to get paid twice on same dollars. Who knows.

I think this is a play by WL carriers to attempt to not lose market share to VUL & IUL. 1st qtr 2022 show WL premiums & sales down & VUL/IUL likely as a direct result of VUL/IUL getting favorable adjustments in the 7702 premium allowed to fit into contracts while WL received almost no benefit from 7702 & also had the added knock of mandatory reprice with lower historical interest rates.

PS— couple of items off the top of my head on where a MYGA may not fit the same as PDA in my mind.

*. PDA doesnt have chance at loss of principal if client bails on it, PDA they only forfeit interest that doesnt make it into the life contract whereas MYGA or other annuity surrender charges eat into principal (because of commission recovery I bet).

*. MYGA (depending on product) may only have annual access to interest or 10% annual & 10% might not be enough to pay the life premiums if the plan was to fund PDA for 3-8 years of premium.

*under age 59 1/2, PDA wont have the IRS 10% early distribution penalty on the taxable interest issued on 1099 like will happen on MYGA 1099

*Lastly, passing suitability at some carriers may be an issue for a MYGA to fund Life depending on carrier & liquidity ratios for financial UW compared to PDA not being a separate app/sale/carrier/suitability-best interest

 

[scagnt83]

I wonder if because it is a "bank like 1099 annual product" if they can pay comp. Not sure if they can or cant. They may also think more agents would put money in it that didn't need to go in it to get paid twice on same dollars. Who knows.

They can. Banks pay agents comp on Index-Linked CDs. They generate a 1099 each year, along with interest payments, FDIC Insured, and pay 1%-3% usually.

They may also think more agents would put money in it that didn't need to go in it to get paid twice on same dollars. Who knows.

The agent doesnt get paid full comp on PDA funds. Around 70%-90% of the PDA deposit is getting renewal comp... thats a 90% difference.

If I bring them a $1m 7y SPIA being used to fund a life policy, they will pay me 1%.

If I bring them a $1m 7y PDA deposit, they pay me 0%.

Carrier gets the same amount of money from both scenarios. Why doesnt the agent?

 

[scagnt83]

*. PDA doesnt have chance at loss of principal if client bails on it, PDA they only forfeit interest that doesnt make it into the life contract whereas MYGA or other annuity surrender charges eat into principal (because of commission recovery I bet).

PDAs usually have some kind of a surrender charge if the policy is kept in-force. Often around 10%.

 

[scagnt83]

*. MYGA (depending on product) may only have annual access to interest or 10% annual & 10% might not be enough to pay the life premiums if the plan was to fund PDA for 3-8 years of premium.

MYGA would not be ideal unless free withdrawal is on the basis. There used to be some out there that allowed that. There are a few different FIAs that allow it. The fixed period SPIA market has shrunk a good bit too. So the options are not like they used to be, but they still are out there. And as long as they exist, carriers are going to lose PDA deposits to them.

 

[scagnt83]

*under age 59 1/2, PDA wont have the IRS 10% early distribution penalty on the taxable interest issued on 1099 like will happen on MYGA 1099

True. If using a deferred annuity, the method only works on age 50+ (since you can 72t a 50 year old for 10 years to fund a 10pay life policy).

 

[scagnt83]

PS— couple of items off the top of my head on where a MYGA may not fit the same as PDA in my mind.

I do get why they dont pay the same comp as a FIA or MYGA. But they could at least pay 0.5%. Or make it based upon the number of years deposits are held. Or just do level 0.25% comp.

Something to compensate me for the $1m dollar lump sum you just put in the General Account.... because without me, those funds would be held by a different financial institution... and the client would still get the life insurance either way.

 

[Allen Trent]

They can. Banks pay agents comp on Index-Linked CDs. They generate a 1099 each year, along with interest payments, FDIC Insured, and pay 1%-3% usually.




The agent doesnt get paid full comp on PDA funds. Around 70%-90% of the PDA deposit is getting renewal comp... thats a 90% difference.

If I bring them a $1m 7y SPIA being used to fund a life policy, they will pay me 1%.

If I bring them a $1m 7y PDA deposit, they pay me 0%.

Carrier gets the same amount of money from both scenarios. Why doesnt the agent?

I wonder if it is invested entirely different statutorily, etc. Some carrier would be doing it to 1 up another (like is done in IUL with multipliers or crediting to in force) as away to lure away. If all are doing it, it tells me there is more to what they can do with bank like product or insurance product, especially big carrier doesn't have a banking entity. Kind of like the carriers don't pay agents on death claim retained asset checking accounts serviced by banks but assets held by carrier

 

[Allen Trent]

PDAs usually have some kind of a surrender charge if the policy is kept in-force. Often around 10%.

Interesting. The ones I have seen merely reverse the higher credited interest rate & pay a lower guaranteed minimum rate. Essentially, you get the high rate for the money that makes it to the life policy where they will collect the loads, etc but if you take money out of PDA before it makes it into the insurance policy, a calculation is applied to retroactively change the credited rate back to the low rate on the removed funds. (I am sure that makes the 1099 interesting if you got 1099 for making 3.5% each year but then later have a chunk reversed to 1% on 6 years of 1099 that already went out in prior years)