BUT...It needs to be structured properly with a reputable company. Remember, your policy’s cash value is in the denominator of the Performance Factor formula. If you take a fixed loan during your first 5 policy years, the cash value backing the loans gets guaranteed crediting of 2%. Click here to see a telling 81-year study of the S&P Index movements from a third party financial company. Regardless, this contractual “back-stop” that removes the PDX’s controversial extra charges and promises at least some sort of modest crediting made me feel a lot more comfortable about the Pacific Discovery Xelerator. We’re relegated to showing you a linear 6.21 or worse on their illustration software. We reveal the formula behind the Pacific Discovery Xelerator’s controversial “Performance Factor" and discuss 5 viable exit strategies if Pac's new IUL's cash value can't outrun PDX's higher charges. So, if you didn’t want to try to shoot the moon with any of Pacific Life’s domestic or international indexed strategies in some years, you could park all or part of your cash value into their fixed-interest account. In the late 1990’s the insurance industry manufactured a way where the client could choose on an annual basis to forego their right to a steady fixed interest rate in hopes of participating in double-digit market returns with no downside market risk. At any point during your policy’s lifespan, your cash surrender value will always be the greater of your policy’s “actual cash value” or this “alternate accumulated value.” When calculating the Alternate Accumulated Value, NONE of the additional Performance Factor charges are ever assessed and Pacific Life hypothetically credits your cash value with steady 2% interest every year in this reduced-fee scenario. We will definitely be heading into the weeds of nitty-gritty life insurance details on the PDX if you’re into that sort of thing. And remember, these are the three worst periods I can find in the S&P 500’s last 81-years, and they’re not that bad (even without any Performance Factor). Keep in mind that the only non-guaranteed element in this illustration is the charges. In this low-yield environment, Pacific Life had a real dilemma on their hands. Source: Securian Financial Competitive Research June 2019 Securian Financial – Orion IUL – Index Option L; John Hancock - Accumulation IUL 18; Pacific Life - Pacific Discovery Xelerator IUL 2; Lincoln - WealthAccumulate IUL This comparison does not take all material factors into account and must not be used with the public. Every single one of these 5 indexed crediting strategies described below have the traditional guaranteed 0% floor like most indexed universal life policies on the market today. You can click here for a link to Pacific Life’s explanation of how the Performance Factor applies additional crediting to a PDX policy. You also have the ability to rebalance and reallocate at the completion of each indexed segment. IUL’s caps are created with S&P 500 Index options purchased by the insurance company’s bond yield. Take a look at the most volatile periods we can find in that 81-year period tracking the S&P 500 in the column titled “Annual Return %.”. Obviously having only a guaranteed death benefit with no cash value is far from ideal. They knew that the other IUL carriers offering significantly higher caps were defying the math. This review examines Pacific Life’s new cost/benefit paradigm within their new PDX product. All the other top IUL carriers are competing vertically, meaning who has the highest cap? Pacific Life has a 2-year S&P 500 strategy with a 30% cap. Flexible, long-term life insurance providing death benefit protection and competitive cash value growth potential, which … 1. This policy includes similar features to a regular universal life policy, including the short-term no-lapse guarantee. The carrier absorbs all the risk and promises the policyholder steady guaranteed growth with the opportunity of earning additional non-guaranteed dividends. Unlike with a traditional No-Lapse Guarantee UL policy, with PDX you can skip a premium and make it up to maintain the integrity of the rider. In 2008-2009 the Great Recession delivered a second knock-out blow to markets (as well as investor complacency). Sure, Whole Life insurance has a guaranteed premium supporting a guaranteed death benefit. Below is an example of the PDX earning 0% with its normal charges on an age 48 male with a standard non-tobacco rating (which is the fourth from the top). But if robust dividends aren’t paid regularly, then Whole Life can hardly function as an income vehicle in retirement. Click here to learn the mechanics behind how IUL carriers offer this unique growth strategy. Thankfully, Pacific Life is one of the top IUL carriers that allows you to essentially refinance your policy loan between the fixed and participating loans each year on the loan anniversary. At the other extreme, we have Variable Universal Life (VUL), in which the client bears all the market risk needed to grow their policy’s cash value. Every Pacific Life’s policy has an 8th-year exchange provision. Pacific Life also has a number of different 1-year S&P 500 strategies with varying caps and participation rates. This is because you continue earning compounding on your entire cash value balance including the amount you borrow against. We spent a lot of this article discussing what happens if things go WRONG with the PDX. If you purchased the Pacific Discovery Xelerator (PDX) Universal Life policy from PacLife or the Eclipse IUL from Minnesota Life in the last 5 years, you may qualify to join this universal life insurance lawsuit or … videos. 1 Pacific Life Insurance Company’s Pacific Discovery Xelerator IUL 2 (Policy Form #P15IUL and S18PDX2 or ICC15 P15IUL and ICC18 S18PDX2, based on state of policy issue). That is why we placed the PDX to the right of IUL but left of VUL on the “risk axis” below. That is how Pacific Life earns their keep. Advertisement All of this was fine and good until we entered a multi-year environment with historically low yields. It is almost the same as buying term while building an emergency fund or saving to buy a house. Are you too busy to go through the hassle of testing for life insurance? We consider it our mission to balance the sea of opinions out there with indisputable facts coupled with critical thinking. Prior to AG-49, an agent could illustrate actual S&P 500 return sequences through Pacific Life’s illustration software. Pacific Life uses a higher schedule of charges at the onset of the policy if you elect an increasing death benefit. However, there’s an incredibly strong argument for tactically allocating even more to the 1-year uncapped option after: You now know that the when your cash value decreases the Performance Factor is more likely to multiply whatever crediting you get the following year. Pacific Life Pacific Discovery Xelerator IUL 2 was the No. Most people usually have enough raw market exposure in their 401(k) or brokerage accounts anyway. Accumulator 5; PDX (Pacific Discovery Xelerator) Protector; Performer LT 2; PDX2 IUL. It’s a guarantee that contractually activates if your policy was about to lapse or if you choose to surrender it voluntarily at any time for any reason. A few carriers have even decided to cover the shortfall by raising their internal costs of insurance (even though people are living longer due to advances in modern medicine). Frankly, this piece alone didn’t get me to a place of full understanding with the product. Even if you level out the death benefit as quickly as year 2, the higher schedule of charges remains in place. 2 … 1 year: regular and high Cap, high participation or no cap; 2 year: higher cap (to allow for longer term) 5 year: high participation rate Indexed Universal Life was born, but was hardly a big seller yet. Regardless of the actual charges you’ve paid in your policy or how much crediting you’ve actually received, Pacific Life is always simultaneously running a hypothetical scenario right alongside your policy called the “Alternate Accumulated Value.”. Information presented on Bankingtruths.com is for general educational purposes only. No one knows exactly how or when, but I think we can all agree that will markets go up and go down…sometimes violently. This option allows you to do a tax-neutral no-commission exchange from whatever product you have to whatever product Pacific Life offers at that time. Hopefully, this piece helped to clarify a lot of the mystery shrouding the new Pacific Discovery Xelerator product and its mysterious Performance Factor. Indexed life sales for the second quarter were $494.9 million , down 6.0% when compared with the previous quarter, and down 14.3% as compared to the same period last year. pages 3–4 for transition guidelines): • PDX IUL 2 will replace PDX IUL3 • PIA 6 will replace PIA 54 Pacific Indexed Accumulator 5 – perfect … If you choose either the 1-year uncapped S&P 500 option or the 5-year uncapped S&P 500 option, there’s no telling how much indexed crediting you can earn, especially during a jolting bounce-back rally following a market crash. �;[��zIl�$rn�Ű��>�N���o��4S#����Jq8�σ�;K����g߄(���qR� y�`c�*�vvq� �]����U*�1����ݽ�� �>4���7�2���4iٕ#Ї6��쇿��� bo��\n�� Elijah said it best. The fact that the combination of features necessary to produce the outsized illustrated income is not guaranteed in the contract language. The extra silos depicted in blue represent additional indexed crediting potential from the Performance Factor. The latest addition to Pacific Life's line of IUL products is designed for death benefit protection with competitive long-term cash value accumulation potential after year 15. What are the positives of Pacific Life’s PDX product? Pacific Life’s indexed universal (IUL) products have a cash value that grows based on an established index (typically the S&P 500, but you may be able to choose another with some products). Now that you understand the bones of how Pacific Life’s proprietary Performance Factor formula works, let’s strategize on how to maximize its overall effect on cash value growth and future retirement distributions. Anything over 5% growth in the S&P 500 index gets credited to your cash value at the end of the year. Indexed UL Sales – its PDX is the #1 Selling IUL plan. Annual indexed universal life insurance premiums hit $1.56 billion at the end of 2014, reflecting a 14% increase from $1.356 billion in 2013, according to Wink’s Sales and Market Report, 2013-2014. The truth is, all permanent life policies are “trust me” products to some degree. However, due to the extra charges of the Performance Factor coupled with a top-end participating loan rate of 7.5%, you should proceed with caution when trying to achieve the same effect with the PDX. All kidding aside, with a 9th grade education we can see the two most meaningful factors that kick-start the multiplier effect of the Performance Factor are: Apparently, Pacific Life purposely designed the Performance Factor to really kick in after down-market years because they don’t want your insurance policy to implode. The client also bears the additional expense risk if the insurance company happened to misprice their product, or if a market crash erases a big chunk of cash value needed to support the policy. currency Mad Pepper was tossed around as a company name idea for Wink. So, they lowered their caps identically on all their IUL policies including the new offerings. Only this has the opportunity to grow (a lot actually), not to mention it may completely pay off a mortgage if you die. That way, your cash value can cover the ongoing cost of insurance lasting a lifetime. Since your cash value technically doesn’t go down with a policy loan, this would obviously not influence the Performance Factor. Pacific Discovery Xelerator IUL 2 December 6, 2016 by Jamie Johnson . Unfortunately, as agents we can’t even illustrate the true power of this performance factor due to the constraints of Actuarial Guideline XLIX (aka AG-49). Most of the top IUL carriers today have installed this type of feature inside their Indexed Universal Life products. They thought outside the box and decided to add value horizontally instead of vertically. 2. Below, I drill even deeper into the guts of the so-called “black box” than even Pacific Life’s marketing piece does. ����s���&e�}p�@w������ With many of the top IUL carriers, their policies illustrate better when all retirement distributions are illustrated as policy loans rather than withdrawals. 1. Independent Agent- Pacific Life Companies Independent Broker Dealer- Protective Life Companies National Broker Dealer- Nationwide RIA- N/A. (Note: This hypothetical 20-year backtest below represents the different crediting percentages that would have been applied given Pacific Life’s current 1-year caps, floors, and participation rates with no Performance Factor applied.). 5. Rather than get caught up in opinions and rhetoric, this review of the new Pac Life’s new Indexed Universal Life product will explore the facts. This policyholder could surrender the policy for over 92% of your premiums paid in 15 years when run at 0%. Keep in mind that if any carrier did either of the above, they would essentially sign the death warrant for the entire life insurance industry. how life insurance policy loans differ from traditional debt. Are you an entrepreneur or professional age 25-60 decent health? With other IUL products, especially those with high caps and low participating loan rates locked in the 5%-6% range, it may be a worth attempting to achieve long-term positive arbitrage using participating loans for retirement income. Indexed Universal Life suddenly looked a lot more appealing once the risk of major market losses came front and center again. Notice what often happens after bad spells in the S&P 500 index. Although the Overloan Protection Rider may protect your policy from lapsing, a bad sequence of returns in retirement could reduce the amount of total income generated by the Pacific Discovery Xelerator. Why when the market only goes up?”. Back-tested average of 7.05% for Pacific Life’s 1-Year Uncapped S&P 500 Strategy after the 5% threshold from 1937-1950, Back-tested average of 6.19% for Pacific Life’s 1-Year Uncapped S&P 500 Strategy after the 5% Threshold from 1962-1975, Back-tested average of 6.66% for Pacific Life’s 1-Year Uncapped S&P 500 Strategy after the 5% Threshold from 2000-2013. Some are at 11%, 12%, 13%, even 14% (as of March 2018). There may be an argument for having some portion of your cash value allocated to one of Pacific Life’s 1-year uncapped option in all years. Thankfully, we’re still allowed to think critically, and so are you. Beginning Feb. 25, 2019, Pacific Life Insurance Company is pleased to introduce Pacific Discovery Xelerator IUL 2 (PDX IUL 2) and Pacific Indexed Accumulator 6 (PIA 6). Pacific Discovery Xelerator IUL; Pacific Indexed Performer LT2; Pacific Indexed Protector 2; Variable Universal Life Insurance. Imagine if you could get those returns multiplied…on a 6-figure cash value account. 1ST QUARTER TOP SELLING PRODUCTS BY CHANNEL: Overall- Pacific Life Pacific Discovery Xelerator IUL 2 Bank- Pacific Life Pacific Discovery Xelerator IUL 2 Career- Farm Bureau Life Foundations Indexed UL Once the Tech-Bubble started popping in 2000 followed by the terrorist attacks on September 11, 2001, we saw every major market index lose somewhere around half of its value or more. Everyone knows that past performance is no promise of future returns, but I always thought it was more compliant to show the effect of good and bad return sequences during accumulation years and distribution years. This certainly makes it easier to trust them over some of the other companies offering indexed universal life. Click here to learn how life insurance policy loans work and how they differ from traditional debt. Note: Certain loan and withdrawal protocol needs to be followed within the PDX policy in order to qualify for the Overloan Protection Rider. Indexed Universal Life insurance can be one of the best things you ever own! The PDX’s special sauce (and source of all the criticism) is its mysterious multiplier effect known as the “Performance Factor.” It can multiply any of the Pacific Discover Xelerator’s index crediting strategies well beyond their stated caps. Obviously, you need to test and measure this on a case by case basis, but we found starting with an increasing death benefit to be a consistent way to increase illustrated retirement income. Pacific Discovery Xelerator IUL – designed for protection and supplemental income; Pacific Discovery Protector IUL – great solution for insurance protection and wealth transfer. Conversely, when you take any kind of policy loan, no cash value actually leaves your policy even though you got a cash distribution from the insurance company. Click here or on the image below to have one of our independent agents help you compare and stress-test PDX’s projected performance using your specific numbers. Review those sequence of returns above and think about how those uncapped indexed returns could get multiplied by the Performance Factor and translate to spurts of robust growth inside your cash value account. As of March 2018, their participating loan rate was 4.65% giving you plenty of room to achieve positive arbitrage even in today’s low cap environment. I’m not sure why that was deemed bad for consumers, but we can no longer do that. But before we unpack the bold claims and harsh criticisms regarding Pacific Life’s new product, let’s take a step back and look at the two extremes of insurance products that led to the evolution of Indexed Universal Life and eventually the PDX. Pacific Discovery Xelerator IUL 2: The death benefit and cash value accumulation of this policy, paired with its flexibility are beneficial for retirees. This credit is just too darn favorable if Pacific Life’s desire was to extract all your premiums and leave you without a policy someday. Allocating any portion of your cash value to the fixed-interest account rebates the additional charges for the Performance Factor back to your PDX policy as a dollar for dollar credit. “Pacific Discovery Xelerator [Indexed Universal Life] provides life insurance protection with the ability to accumulate cash value at index-based interest crediting rates,” PacLife states. When you can soften the blow of down-years with zeroes (minus charges), and you can sometimes multiply up-years, this may prove to be winning proposition with less volatility than the actual market. Click here to understand how Whole Life promises guaranteed growth. Notice the crossover at year 3 between the actual cash value and the alternate accumulated value you would be entitled to if you were to terminate the policy. 3. In this schematic above we are assuming that the policyowner would take a more diversified approach to blending different indexed crediting strategies (including the fixed-interest crediting strategy), which is why it sits below VUL on the return axis. Click here to read how bad things would likely be in the world for your policy to simultaneously earn 0% and have the company raise the charges to level illustrated in the guaranteed column. We have found in many situations that illustrations using the Pacific Discovery Xelerator’s wash loan still produces substantially more ongoing retirement income than other top performing IUL policies. Indexed Universal Life Insurance does not directly participate in any stock or equity investments. Since you’re essentially paying additional charges for these extra silos of options (which is not meant to be a profit center for them), Pacific Life wants the Performance Factor to be a winning proposition to keep your policy alive and kicking. Crediting Methods. (Note: this spread between the crediting and loan rate is guaranteed to be never more than 0.25%). Pacific Life Pacific Discovery Xelerator IUL 2 $24,160 17% $200,967 $412,392 John Hancock Accumulation IUL 19 $21,787 5% $199,135 $422,199 American General QoL Max Accumulator+ IUL w/MLSB and SIR $21,714 5% $199,911 $433,494 American General QoL Max Accumulator+ IUL w/MLSB $20,707 0% $199,911 $429,248 Global Atlantic Global Accumulator IUL 1 selling product for non-variable universal life sales, for all channels combined, for the fourth consecutive quarter. Thankfully, Pacific Life Regional Vice President Evan Ohs and Field Representative Elijah Robles gracefully took the flack as 12 elite agents from my study group skeptically lobbed a barrage of loaded questions at them. Pacific Life offers something called an Overloan Protection RIder. Also, Pacific Life’s fixed-interest loan is the lowest in the industry locked at 2.25% for the life of the policy. Indexed Universal Life Insurance does not directly participate in any stock or equity investments. Needless to say, you should verify the concepts and hypothetical projections discussed in this article with a licensed professional using your own data. For some though, the Pacific Discovery Xelerator’s unique structure offering the possibility for outsized indexed crediting and retirement income may be worth the additional costs. %PDF-1.6 %���� Click here to thoroughly understand all the pros and cons of Indexed Universal Life insurance. Pacific Life Insurance Company, policy form #P15IUL and S18PDX2 or ICC15 P15IUL and ICC18 S18PDX2, based on state of policy issue. ��G3�빉�ĵ��f����'HM �1��;D��>S����,��sI�?�m�#�d,Ze�׀���F�}�5��>�P�����*Y�$�ڡ����J��Dô��E^Ј&^s.m5� �X9����=k4��Ǖ�O#�5�� j�M�ܠ���7Y[Fwy_9�Q��W�t���n?Us7`Z�w��^Xw"�;5���o���T�*,_9�qF��?B&#F���:{��� ���$«,L�غפ���OXDN�>Lnp�^��b�PךeJ��%'86c� �:�����[k�g 4�Y�t�/�N�`�qui��ٹ��S��(�|�6�����k�{�}Ed�6h���Yʨ��]�\i��9*b\�. 2. Do you think you can qualify for a Standard or Preferred rating if you did formally underwrite. Thankfully, having placed sizable cases with Pacific Life in the past, they granted me some privileged meetings with executives and product design specialists to help me understand what was really going on with the new Pacific Discovery Xelerator. However, Pacific Life has never raised their charges above what was illustrated, nor have any of the top IUL carriers which are mainly mutual companies. Choose Uncapped Options after Bad Years. Click here to learn more about the uniform standards for crediting rates that all IUL carriers and agents must comply with. That said, I find that once clients understand how costs and risk can be quantified and managed, they are much more comfortable moving forward with a particular strategy. So what did Pacific Life decide to do since they had one of the lower 1-year S&P 500 caps in the industry? The No-Lapse Guarantee rider allows you to “get off the mat” if for some reason the S&P 500 got pounded for several consecutive years early on in the life of the policy.” Needless to say, if the S&P 500 experiences an unprecedented string of five or more years of annual losses, we all will probably have much bigger problems than our paper assets. It is not a recommendation of any specific insurance or financial product. There is also a two percent guaranteed interest rate to protect the investment, but can accumulate at a higher rate with index fluctuations. Take a moment to think of what could go RIGHT. Pacific Life Pacific Discovery Xelerator IUL 2 was the #1 selling product for non-variable universal life sales, for all channels combined, for the 3 rd consecutive quarter. Rather than offer one singular silo of indexed crediting, Pacific Life decided to multiply the number of silos that a client could earn indexed crediting with. All companies that offer IUL reserve their right to increase their charges by more than triple. Keep in mind that with the Pacific Discovery Xelerator you can mix and match any combination of these strategies together. VUL fell firmly out of favor, and IUL quickly became the product of choice for those looking to use life insurance for retirement and cash value accumulation. That way, if you do choose to be tactical and try to capitalize off of an impending bull run using the PDX’s participating loan, you can easily switch it back to the more prudent fixed loan if the rally slows or the participating loan rate becomes too unattractive. The pure uncapped participation offered by VUL offered seemed to be a much more attractive insurance choice than IUL. It offers death benefits and accrues cash value on a tax-deferred basis. They understand that the S&P 500 index has gone up much more often than it has gone down, and after deep market crashes, there have historically been very steep rebound rallies. Right next to the raw returns of the S&P is a column titled “Limited Return %.” What’s being represented there is the hypothetical back-tested crediting of Pacific Life’s 1-year uncapped S&P 500 strategy where you earn 0% when the S&P 500 earns 5% or less in any given year. You can actually click any of the bullets below to skip right down to that part of this article. For international exposure, there is also a capped 1-year strategy that blends the performance from the Euro Stoxx, Hang-Sang, and Emerging Markets indexes. After reading from critical online sources that the PDX was the worst kind of “trust me” product relying on some sort of mysterious “black box,” I knew there must be more to the story, and that I needed to learn more. 4. By using our site you are acknowledging our. It needs to be a much more attractive insurance choice than IUL guaranteed interest rate protect... From Pacific Life at least has a number of different 1-year s & P 500 caps in s!, especially when they ’ re relegated to showing you a linear or! Lt 2 ; PDX2 IUL 12 %, 13 %, even 14 % ( well! Concepts and hypothetical projections discussed in this article with a licensed professional about the uniform standards for crediting that. 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