Individual Bonds vs. MYGA's

[Freedom56]

Yes, MBL was one of the nasty ones. I don't think that policyholders lost money... they lost access to cash out for a while so there would not be a run on the bank so the real estate portfolio could be worked out orderly rather than a fire sale but my understanding is that policyholders did, eventually, receive what they were due, including principal and any minmum guaranteed benefits and more.

I remember serving on a task force where a number of solid insurers banded together to reinsure some of their separate account business to help protect policyholders if some of the real estate wasn't able to be worked out. I left my employer before it was done, but I think MBL was able to work it out without the reinsurance ever coming into play.

Eventually the business was placed with other healthy insurers.

The MBL and Executive Life receiverships resulted in significant reforms to restrict investment concentrations and regulatory surveilance so that there have not been any significant rehabiitations since (there have been some smaller ones).

Policy holders lost any accrued cash value on their policies. Many life insurance policies back then paid dividends. Those were lost.

 

[pb4uski]

I don't think you are right on that....on the losses that is. Do you have any evidence or citations to support that? I understand all about mutual whole life policies and dividends.

 

[Mulligan]

But you need to consider corporate structure. Usually bonds are issued by the holding company which relies on dividend distributions from the insurance subs to service the bonds. There are regulatory restrictions on dividend distributions from the insurance sub to the holding company. If the insurer were troubled enough that its financial strength and ability to pay claims was in question, the regulators would disallow dividend distributions from the insurance sub to the holding company. So as a practical matter, the policyowners come before the bond holders.

PB, this gets confused a lot. Yes, one needs to know the holding company (who owns the insurance companies) is a separate entity from the claims paying subsidiaries which may have the strong ability to pay. That rating has no bearing on the credit worthiness of the holding company which can be decent or actually very weak. But that specific risk is a problem for the investor, not the insured.

 

[jazz4cash]

So if I buy a MYGA am I an investor or insured?

 

[pb4uski]

^^^ Yes.

You're both... while the MYGA walks like a CD, what makes it an annuity and eligible for tax-deferred status, is the annuitization option that is attached to the MYGA even though the annuitization option is rarely exercised.

 

[Freedom56]

^^^ Yes.

You're both... while the MYGA walks like a CD, what makes it an annuity and eligible for tax-deferred status, is the annuitization option that is attached to the MYGA even though the annuitization option is rarely exercised.

Wrong. A MYGA is not anything like a CD, nor treasury, nor corporate bond. At maturity of a CD, treasury, or corporate bond, your principal and last accrued coupon payment is automatically payed back to you. This is not the case for MYGAs.

"When a fixed annuity (Multi-Year Guaranteed Annuity, or MYGA) has reached the end of its guaranteed investment term, it doesn’t mean that a check will automatically be mailed to you. In fact, unless you act, your annuity will continue and you may earn a lower renewal rate going forward. And, depending on your contract, if no action is taken before the renewal date, the new rate may be locked in for a period of time with potentially additional surrender charges for withdrawals or surrenders."

Some annuities have surrender charges even after the term ends. Read the fine print before even considering buying. Remember goal of the insurance company is to never give back your principal and make you keep deferring your interest payments.



https://www.blueprintincome.com/res...-the-end-of-my-fixed-annuity-guaranteed-term/

 

[ShokWaveRider]

Wrong. A MYGA is not anything like a CD, nor treasury, nor corporate bond. At maturity of a CD, treasury, or corporate bond, your principal and last accrued coupon payment is automatically payed back to you. This is not the case for MYGAs.

"When a fixed annuity (Multi-Year Guaranteed Annuity, or MYGA) has reached the end of its guaranteed investment term, it doesn’t mean that a check will automatically be mailed to you. In fact, unless you act, your annuity will continue and you may earn a lower renewal rate going forward. And, depending on your contract, if no action is taken before the renewal date, the new rate may be locked in for a period of time with potentially additional surrender charges for withdrawals or surrenders."

Some annuities have surrender charges even after the term ends. Read the fine print before even considering buying. Remember goal of the insurance company is to never give back your principal and make you keep deferring your interest payments.



https://www.blueprintincome.com/res...-the-end-of-my-fixed-annuity-guaranteed-term/

Only if you are negligent and do not contact them upon maturity. The "some annuities" statement does not apply to MYGAs. There are no surrender charges.

We know you are against them, no need to keep trying to convince us otherwise. Some of us here have used them for years with no issues. OTHER annuities are not as straight forward. But NOT MYGAs. I just checked mine and they are payable or eligible for annuitization upon maturity.

They are invaluable to us as the interest is deferred until taken and they are excluded from litigation judgements in Florida.

Some Q&A

Q: Does the interest compound?
A: Yes.

Q: Is the interest taxed?
A:Your annuity grows tax deferred. This maximizes your growth potential because you are not taxed on your earnings until you withdraw money from your annuity. If your money is not already in a pre-tax account such as an IRA or 401k, this is an advantage over a bank CD where each year your interest is taxed each year.

Q: Are there any fees?
A: No, there are no sales charges or ongoing maintenance fees.

Q: Is it FDIC insured?
A: No. FDIC insurance is only for bank deposits. Fixed annuities are guaranteed by the issuing insurance company.

Q: How do I access my money?
A: You can withdraw 10% of your purchase payment the first year and 10% of your account value each year thereafter

Q: What are the early surrender charges?
A: The early surrender charges only apply to withdrawals which are greater than the penalty free amount. If surrender charges apply, they start at 7% and decline to 0% after the 5th year. The schedule is 7%, 7%, 7%, 6%, 5%, 0%.

 

[pb4uski]

Wrong. A MYGA is not anything like a CD, nor treasury, nor corporate bond. At maturity of a CD, treasury, or corporate bond, your principal and last accrued coupon payment is automatically payed back to you. This is not the case for MYGAs.



"When a fixed annuity (Multi-Year Guaranteed Annuity, or MYGA) has reached the end of its guaranteed investment term, it doesn’t mean that a check will automatically be mailed to you. In fact, unless you act, your annuity will continue and you may earn a lower renewal rate going forward. And, depending on your contract, if no action is taken before the renewal date, the new rate may be locked in for a period of time with potentially additional surrender charges for withdrawals or surrenders."



Some annuities have surrender charges even after the term ends. Read the fine print before even considering buying. Remember goal of the insurance company is to never give back your principal and make you keep deferring your interest payments.







https://www.blueprintincome.com/res...-the-end-of-my-fixed-annuity-guaranteed-term/

Actually, I've had bank CDs that automatically renew at maturity unless you intervene or set it up not to renew in advance... and the renewal CD has early withdrawal penalties... that is common in my experience with CDs.. ... so your assertion is wrong. Stop picking nits for chrissakes.

 

[Freedom56]

Actually, I've had bank CDs that automatically renew at maturity unless you intervene or set it up not to renew in advance... and the renewal CD has early withdrawal penalties... that is common in my experience with CDs.. ... so your assertion is wrong. Stop picking nits for chrissakes.

I haver never had a corporate bond auto renew nor treasuries. They return 100% of capital at par value. So do CDs and you specify your renewal options when you buy the CD. Try doing that with a MYGA. Again the goal of an insurance company is never to return your principal in full at maturity and keep you deferring income. This is their business model when selling these products. This is why they target seniors. It's all free money to them. Look at the withdrawal penalties stated in an early post. That alone is enough to stay away from them. When you cash in a CD early, in most cases you forfeit some of the accrued interest. I have never heard of a bank charging a 7% penalty for cashing in a CD? With corporate bonds, you sell at market prices which could be even higher that what you paid and your are paid all your accrued interest by the buyer. Over 80% of the bonds that I have bought on the secondary market this year are trading 2-3% higher than my purchase price. I certainly won't be penalized 7% for selling it today or tomorrow. In an earlier post you called a MYGA insurance. How is a MYGA insurance? It's a just a contract with an insurance company that heavily favors the insurance company.

 

[pb4uski]

While is true that bonds or treasuries don't renew, we were not talking about those. I was comparing CDs and MYGAs in respe to a question whether it ws an investment or insurance.

IME with a number of different banks and credit unions, if you don't elect something different when you sign up the default option is to renew automatically, though you can change that elecion before maturity.

I'm not totally sure that MYGAs automatically renew, but it wouldn't surprise me.

As to your statement "the goal of an insurance company is never to return your principal in full at maturity and keep you deferring income" that applies to all financial institutions in my experience and is just smart business to retain assets under management... and that is also why the default option for CDs is usually to auto renew. Also, IME insurers don't target seniors... my former employer sold MYGAs to all ages and the only group that was targeted was people with money to invest.

You hate insurers. We get it. No need to make stuff up to make a point because insurers have plenty of warts to point to so it isn't necessary to make stuff up.

And agree that MYGA surrender penalties are outrageous, especially compared to CD early withdrawal penalties. They exist to reimburse the insurer for their acquisition costs if the policyholder surrenders early. But many MYGA buyers plan to hold to maturity so it isn't a concern for them or the 10% annual penalty withdrawal provisions are sufficient for their cash flow needs. For the record, I don't own any MYGAs or any annuities for that matter but I am familiar with them from my work in the industry.

The reason that it is insurance is because of the annuitization options included in the contract. The IRS considers it insurance and that is why the inside build-up is not taxed until withdrawal rather than as received like CDs, bonds, etc. As I indicated earlier, that annuitization provision is rarely selected at maturity, but it has to be there for the inside build-up to be tax-deferred.

 

[Freedom56]

As to your statement "the goal of an insurance company is never to return your principal in full at maturity and keep you deferring income" that applies to all financial institutions in my experience and is just smart business to retain assets under management... and that is also why the default option for CDs is usually to auto renew. Also, IME insurers don't target seniors... my former employer sold MYGAs to all ages and the only group that was targeted was people with money to invest.

You hate insurers. We get it. No need to make stuff up to make a point because insurers have plenty of warts to point to so it isn't necessary to make stuff up.

When you buy a CD from Fidelity, TDA, or Schwab, there is no default auto-renewal. I have never had issues transferring cash from maturing bonds/CDs from Fidelity, TDA, and Schwab to money market savings accounts at other institutions. How many insurance companies allow seamless transfer of funds from them? Most are not even set up for that.

I don't hate insurers and nothing was made up. Other than health insurance, home, and auto insurance, I have no need for them. They certainly are not my go to place for investment products. They target vulnerable seniors. This is a fact or life - predators and prey. They target my parents who are in their mid 80's relentlessly. This is why they gave me full power of attorney for their investments about twenty years ago. People are free to choose how they invest. But people who willingly buy these products should do so with their eyes wide open. I'm glad you worked for an insurance company that targeted all age groups and not just seniors.

 

[jazz4cash]

I am using all of these products to satisfy my fixed income allocation: CDs, bonds, notes, and MYGAs. We haven’t really discussed the Market Value Adjustment that many MYGAs include. It will increase the onerous surrender charges if rates have increased since you purchased the contract. I find the descriptions and statements detailing the MVA and free withdrawals to be vague. I’ve only received an annual statement for my MYGA and the broker’s webpage does not show monthly crediting.

 

[Katoslake]

Enjoyed the discussion here. That said, what/where/how should we be allocating to fixed investments ? Specifically please. 5 year or less time horizon. Thanks

 

[pb4uski]

When you buy a CD from Fidelity, TDA, or Schwab, there is no default auto-renewal. I have never had issues transferring cash from maturing bonds/CDs from Fidelity, TDA, and Schwab to money market savings accounts at other institutions. How many insurance companies allow seamless transfer of funds from them? Most are not even set up for that.

I don't hate insurers and nothing was made up. Other than health insurance, home, and auto insurance, I have no need for them. They certainly are not my go to place for investment products. They target vulnerable seniors. This is a fact or life - predators and prey. They target my parents who are in their mid 80's relentlessly. This is why they gave me full power of attorney for their investments about twenty years ago. People are free to choose how they invest. But people who willingly buy these products should do so with their eyes wide open. I'm glad you worked for an insurance company that targeted all age groups and not just seniors.

Good point... the CDs that I have in mind that tend to auto renew are all bank CDs and not brokered CDs that you were thinking of.. it wouldn't make much sense for a brokered CD to autorenew.

I guess we'll need to agree to disagree on how easy it is to transfer funds out of an insurer... just a phone call or a few clicks in my experience.

 

[ShokWaveRider]

I have always purchased CDs direct from a credit union. No issues as I have always held to maturity and managed them accordingly. Same with MYGAs, no issues. I guess it is different for those who cannot remember to check them on maturity. Again, Tax deferred and protected from litigation in Florida trumps CDs (unless in qualified funds), in our case 70% of our stash is unqualified purposely in anticipation of ER, and DW is still on ACA.

 

[Rianne]

Enjoyed the discussion here. That said, what/where/how should we be allocating to fixed investments ? Specifically please. 5 year or less time horizon. Thanks

I agree, good discussion. I keep going back to UST. Treasuries are a sure thing, although the interest rates aren't as good. Pb4uski has advised in other threads to ladder treasuries and I/we will follow that advice.