Insurace co CD: fixed immediate annuity?

[Spock]

There was a brief mention in another thread about single fixed premium, immediate, period certain annuities essentially (and over simplistically) being "a CD from an insurance company".

With CD rates heading back down the drain, I went surfing for 50K single premium, 5 year "period certain" and the results are dismal.
All I can find are those that pay back principal/premium monthly, and they seem to pay a whopping 0.25%

One aggregator website SUGGESTS options as high as 4%, but I have to drop the credit rating screener down to B+ to see those. It presents zero zip nada options with A or better credit rating. And find a name brand recognizable/too-big-too-fail company? fuhgeddaboutdit.



So are these CD alternatives the mythical unicorn?
Or where are y'all finding these "CD-like" annuities?

 

[jazz4cash]

They’re not unicorns. Fidelity and VG have them. Here’s the site most frequently cited here. It has a 5 yr at 3.85% from a B++ rated company. Do not confuse insurance company ratings with the ratings you would see for an individual bond.
www.immediateannuities.com. They’re sometimes called MYGAs. Multi Year Guaranteed Annuity.

 

[jazz4cash]

If you insist on higher rated insurance companies, Fido has one from The Principal that has an A+ rating with 1.85% for 5 yrs.

 

[JoeWras]

My dad started having dementia and marched into the bank office and demanded higher rates on his CD. The investment arm of the bank put him in these.

It wasn't the worst thing in the world. They've worked out fine.

A few things to consider.

- Not FDIC insured. Maybe OK though with the big boy insurers.
- Tax deferral. Both good and bad.
- Early surrender complications.

I inherited dad's and was given the opportunity to let it ride another 5 years. I did in order to defer the tax hit until I ER'd, which is this year, when I have no W-2 wages. So, that's actually a good thing. It was also paying 3 to 5 % during this time.

I'm still not in a hurry to get into these again though.

 

[ShokWaveRider]

They used to be a good rate A and A+ rated companies for 3 year durations until bond returns dropped. They are typically based on the 5 and 10 year Treasuries. I did get a quote a few months back for 3.15% from Minnesota Life, but not anymore.

 

[pb4uski]

There was a brief mention in another thread about single fixed premium, immediate, period certain annuities essentially (and over simplistically) being "a CD from an insurance company".

With CD rates heading back down the drain, I went surfing for 50K single premium, 5 year "period certain" and the results are dismal.
All I can find are those that pay back principal/premium monthly, and they seem to pay a whopping 0.25%

One aggregator website SUGGESTS options as high as 4%, but I have to drop the credit rating screener down to B+ to see those. It presents zero zip nada options with A or better credit rating. And find a name brand recognizable/too-big-too-fail company? fuhgeddaboutdit.



So are these CD alternatives the mythical unicorn?
Or where are y'all finding these "CD-like" annuities?

It is not single fixed premium, immediate, period certain annuities... while it goes my many names, generically it is referred to as a SPDA (single premium deferred annuity) and is very much the insurance industry verson of a CD. Like a CD, you don't receive periodic payments.

Typically, the buyer makes a single premium payment and is promised x%/year for y years... like a CD. At the end of y years, they can surrender it for cash (in which case the growth is taxable), roll it into a new SPDA or exercise the annuitization option and receive periodic payments for a certain period or for life. The annuitization option is what allows it to be considered an annuity and interest not taxed until it is received, which is handy for those with ACA income subsidy constraints or who don't want to show income for college funding.

From what I have seen the rates are in the ball-park with CDs of similar duration, or perhaps a tad lower.

From Fidelity's website:

Guaranteed Rates for Florida	As of 09/02/2019

Issuer/Product	Guarantee/Surrender Period	Base Rate3	Jumbo Rate
MassMutual Stable VoyageSM	3/3 YR	1.55%	1.80%
New York Life Secure Term MVA Fixed IV	3/3 YR	1.55%	1.80%
Principal Select Series	3/3 YR	1.85%	1.95%
Western Southern SmartSelect	3/3 YR	1.60%	1.75%
MassMutual Stable VoyageSM	4/4 YR	1.60%	1.85%
New York Life Secure Term MVA Fixed IV	4/4 YR	1.55%	1.80%
Principal Select Series	4/4 YR	1.85%	1.95%
Western Southern SmartSelect	4/4 YR	1.50%	1.65%
Guardian Fixed Target AnnuitySM	5/5 YR	1.05%	1.15%
MassMutual Stable VoyageSM	5/5 YR	1.60%	1.85%
New York Life Secure Term MVA Fixed IV	5/5 YR	1.55%	1.80%
Principal Select Series	5/5 YR	1.85%	1.95%
Western Southern SmartSelect	5/5 YR	1.30%	1.45%
Guardian Fixed Target AnnuitySM	6/6 YR	1.00%	1.05%
New York Life Secure Term MVA Fixed IV	6/6 YR	1.55%	1.80%
Principal Select Series	6/6 YR	1.85%	1.95%
Western Southern SmartSelect	6/6 YR	1.30%	1.45%
Principal Select Series	7/7 YR	1.85%	2.00%
Western Southern SmartSelect	7/7 YR	1.30%	1.45%
Principal Select Series	9/9 YR	1.65%	1.80%
Western Southern SmartSelect	9/9 YR	1.00%	1.15%
Western Southern SmartSelect	10/10 YR	1.20%	1.35%

 

[brewer12345]

It is not single fixed premium, immediate, period certain annuities... while it goes my many names, generically it is referred to as a SPDA (single premium deferred annuity) and is very much the insurance industry verson of a CD. Like a CD, you don't receive periodic payments.

Typically, the buyer makes a single premium payment and is promised x%/year for y years... like a CD. At the end of y years, they can surrender it for cash (in which case the growth is taxable), roll it into a new SPDA or exercise the annuitization option and receive periodic payments for a certain period or for life. The annuitization option is what allows it to be considered an annuity and interest not taxed until it is received, which is handy for those with ACA income subsidy constraints or who don't want to show income for college funding.

From what I have seen the rates are in the ball-park with CDs of similar duration, or perhaps a tad lower.

From Fidelity's website:

Guaranteed Rates for Florida	As of 09/02/2019

Issuer/Product	Guarantee/Surrender Period	Base Rate3	Jumbo Rate
MassMutual Stable VoyageSM	3/3 YR	1.55%	1.80%
New York Life Secure Term MVA Fixed IV	3/3 YR	1.55%	1.80%
Principal Select Series	3/3 YR	1.85%	1.95%
Western Southern SmartSelect	3/3 YR	1.60%	1.75%
MassMutual Stable VoyageSM	4/4 YR	1.60%	1.85%
New York Life Secure Term MVA Fixed IV	4/4 YR	1.55%	1.80%
Principal Select Series	4/4 YR	1.85%	1.95%
Western Southern SmartSelect	4/4 YR	1.50%	1.65%
Guardian Fixed Target AnnuitySM	5/5 YR	1.05%	1.15%
MassMutual Stable VoyageSM	5/5 YR	1.60%	1.85%
New York Life Secure Term MVA Fixed IV	5/5 YR	1.55%	1.80%
Principal Select Series	5/5 YR	1.85%	1.95%
Western Southern SmartSelect	5/5 YR	1.30%	1.45%
Guardian Fixed Target AnnuitySM	6/6 YR	1.00%	1.05%
New York Life Secure Term MVA Fixed IV	6/6 YR	1.55%	1.80%
Principal Select Series	6/6 YR	1.85%	1.95%
Western Southern SmartSelect	6/6 YR	1.30%	1.45%
Principal Select Series	7/7 YR	1.85%	2.00%
Western Southern SmartSelect	7/7 YR	1.30%	1.45%
Principal Select Series	9/9 YR	1.65%	1.80%
Western Southern SmartSelect	9/9 YR	1.00%	1.15%
Western Southern SmartSelect	10/10 YR	1.20%	1.35%

Might as well just buy a treasury.

 

[ShokWaveRider]

Might as well just buy a treasury.

You cannot defer income (Unless an IRA or such like) with treasuries.

 

[pb4uski]

Might as well just buy a treasury.

Unless one has a reason to want to defer the income I agree... though many CDs yield more than a treasury and have negligible credit risk.

I've been picking up 5-year credit union CDs yielding 3% and more over the past couple months.

 

[gailwinters]

We had one of these annuities which matured earlier this year. It was a 10 year paying 6%. We reinvested in a 5 year paying 3.5%. We have the option to withdraw 10% per year if we want to. We used BluePrint Income and were pretty pleased with their offerings and with their service.

 

[pb4uski]

I don't see them as attractive at all. The best 5 year A+ or better on Blueprint Income was 2.7% (PennMutual). I recently bought a 5 year CD yielding 3.0%. Better yield, less credit risk.... I'll stick with CDs.

 

[ShokWaveRider]

I don't see them as attractive at all. The best 5 year A+ or better on Blueprint Income was 2.7% (PennMutual). I recently bought a 5 year CD yielding 3.0%. Better yield, less credit risk.... I'll stick with CDs.

You are perfectly correct, they are not attractive at all, at least not anymore.

 

[jazz4cash]

I don’t get the bashing of these things. They have their place. Being able to take 10%\yr withdrawal w/o any penalty is a feature that I might find useful. If you require A+ ratings to SWAN they are not so attractive. I thought treasury paper is sub 2% out to 10 yrs. I don’t need much of that !

 

[JoeWras]

I don’t get the bashing of these things. They have their place. Being able to take 10%\yr withdrawal w/o any penalty is a feature that I might find useful. If you require A+ ratings to SWAN they are not so attractive. I thought treasury paper is sub 2% out to 10 yrs. I don’t need much of that !

Although DW and I are not signing up for these, I still agree that bashing is probably not warranted.

When I spoke to the bank investment guy about my dad, he brought up to me that he felt my dad was showing signs of dementia, but was very insistent on better rates and wasn't going to leave the bank without a "real" CD rate. He said he felt this was the best vehicle for my dad that still fell in the guidelines of fiduciary responsibility. I really couldn't disagree and was thankful he didn't throw him into a variable annuity or other exotic.

 

[Bruno]

First of all I drive a chevy not a cadillac.

The actual rate is 4% but I renewed my Personal Choice annuity for 5 yrs @3.92% with a free 10% withdrawal. Don't put your money here if you want it out early for sure they have high surrender charges. https://sslco.com/content/personal-choice

Other mega posters here do not like it since its a B++. I feel it's just as safe here in Oklahoma its guaranteed thru the OK State insurance Corp. I would like to know the last time a Insurance company faulted?

 

[pb4uski]

I agree on the last part.... even though B++ the risk of default is minimal... the insurer would have to blow through reserves and surplus and then you have the state guarranty fund on top of that. Very unlikely in 5 years.

The last major insolvency that I can remember was Mutual Benefit Life back in the mid to late 1990s but I'm sure there have been smaller ones since then.

When I worked in the industry I heard claims that no one had ever lost principal to an insurer insolvency (but they might have received less than the interest rate promised in their contract) but I've never seen proof of that but it wouldn't surprise me if it was true.

 

[brewer12345]

Penn Treaty is currently insolvent and Will impair policyholders.

 

[pb4uski]

Interesting.... I had never heard of them... from a couple articles it sounds like a LTC specialist that didn't raise premiums enough to reflect emerging experience and it caught up with them.

While it appears that some policyholders won't get their promised benefits for LTC, its not a loss of principal per se.

I wonder if regulators might be able to sell off their non-LTC business to another insurer. Back in the late 1990s a small group of insurers got together and reinsured certain blocks of MBL's business.

 

[Bruno]

Being able to take 10%\yr withdrawal w/o any penalty is a feature that I might find useful.

Yes, I agree with this. The Annuitization rate interest was so small i renewed it with the free 10% withdrawal. I just retired in July 2019 I didn't want to pay taxes on all the interest earned the last 5 years @ 3.12%. My plan is to take some of the 10% for the next 5 years to reduce my taxes just before i have to take my RMD.

 

[brewer12345]

Interesting.... I had never heard of them... from a couple articles it sounds like a LTC specialist that didn't raise premiums enough to reflect emerging experience and it caught up with them.

While it appears that some policyholders won't get their promised benefits for LTC, its not a loss of principal per se.

I wonder if regulators might be able to sell off their non-LTC business to another insurer. Back in the late 1990s a small group of insurers got together and reinsured certain blocks of MBL's business.

The way I read things there really is no meat left on the bone there and it is a mess. I expect more troubles for other companies that were in this business.

 

[jazz4cash]

Does Penn Treaty offer the type of annuity being discussed or sell them in the past?

 

[pb4uski]

The way I read things there really is no meat left on the bone there and it is a mess. I expect more troubles for other companies that were in this business.

Yeah the article that I read indicated $4b of LTC liabilities and only $700m of assets.... I don't know how things could get that bad without regulators stepping in a long time ago... there was obviously a huge failure by regulators and auditors somewhere along the line. LTC is hard.

 

[gailwinters]

I would never advise anyone to purchase an annuity, but our original purchase was pre-TEFRA. We have already withdrawn our original contribution, so all of the remaining value is taxable when we withdraw it. We are planning to withdraw 10% each year to get the money into something more easily accessible. That amount also makes it easier to handle the taxes due.

 

[Bruno]

Does Penn Treaty offer the type of annuity being discussed or sell them in the past?

In what i read it looked like they sold Long term care insurance.

Maybe my question Should have been : I would like to know the last time a Insurance company faulted that sold annuities?

 

[jazz4cash]

In what i read it looked like they sold Long term care insurance.

Maybe my question Should have been : I would like to know the last time a Insurance company faulted that sold annuities?

Yes, that how I interpreted your question.