Pacific Life PDX

Pacific Life PDX – do NOT Buy or Sell this IUL!

New March 2017 is the PDX which they promote as being the best in the market for providing income – it is NOT! Unless you believe in Santa Claus or the Tooth Fairy.  I will address this more below, but to produce these “fabulous” projections they include these 3 components which are NOT listed in the policy illustration and are NOT in the Technical Guide:

1. Persistency Bonus.  They can tell you that for the Fixed account it is projected to be 0.279% to 1% based upon Age/Gender at issue.  Starts year 11 and goes through (ONLY) year 20 or age 70, whichever is greater. Presumably the same range for the Indexed accounts.  Not guaranteed. Not listed or explained in illustration or technical guide.

2. Indexed Performance Factor.  Projected avg. is about 1.1%.  Year 4+.  Amount determined at start of each segment (same as cap).  Not guaranteed. Not listed or explained in illustration. The technical guide gives an explanation of when it may be applied but not how much it could be. This is basically a high participation rate not subject to caps. AG 49 will not allow them to illustrate it’s effect so they get around this by making it an interest rate bonus.

3. Performance Multiplier Factor.  Min. guaranty is 1, but could be as high as 2 or 3.  Expected avg. is 1.5.  Year 3+.  Not guaranteed. So an annual gain could be 30% or more?! The illustration does list the word ‘multiplier’ but there is NO explanation as to why it is in it or what an estimated avg. or range could be. Technical guide does not explain how much it is could potentially be. It is just a “trust me”, it will be good. Don’t fall for it.

Before I delve into this more, Pacific Life has been selling IUL for many years and for many of them have been ranked as the #1 Selling Co. for IUL including for 2016. This does NOT mean the products are good. Compared to those offered by other companies they are NOT. Why do they sell so much? One short answer is because ‘out of the box’ it is the highest Target so the highest commission IUL in the industry, so this is what agents choose to sell their “ignorant” (not a criticism – there is no way they can know) clients rather than – in my opinion – show a product that is much better for the client. [To be able to compare target apples-apples with other co.’s it is necessary to use their term blend option – with a ratio of 59% term].

I have been analyzing IUL’s for about 10 years now and I rarely editorialize about one, but this PDX IUL represents such an egregious abuse by a co. to delude and deceive clients and agents as to how it could perform that I feel I have no choice because agents at what I consider the “top” co.’s – trying to do the best for their clients – are emailing me that they cannot ‘compete’ against these “false” PDX illustrations. My analysis of this IUL started out as normal, then an agent emailed me asking about the features above that were not even listed in the illustration. So I called Pacific Life, and yep, there are those 3 features for the cash value crediting in this policy that are NOT mentioned/described/explained in the illustration and NOT mentioned and/or described and/or even explained in the Agent Technical Guide. I was dumbfounded to be told this. As I think it is rather important to list and explain in the illustration and technical guide these kind of things, and you should too.

So what do I base the quality of IUL’s on? First I do not do any cash value analysis with any kind of bias for or against any co. I run the numbers based on the criteria that follows. The projections for all co.’s are run through the same calculator and the “neutral” results are the basis for their ranking:

I look back at the hypothetical performance for the past 20 years (1997-2016) based upon the IUL’s current cap and apply it to each of those years and determine what the gain would have been net all the policy costs for each year (those come from the co. illustration). Depending on the co. I also adjust for any Fixed Account requirement and guaranteed bonus – but I do not include anything else such as a bonus if it is not guaranteed. Next I compound it out year-x-year to determine a Year 20 NET value. Based upon that avg. 20 year gain I also project those values out another 20 years with variable loans at a rate of 7% (the historical 50 year avg. is closer to 7.5%) if there is no loan cap – which Pacific does not have (what I consider to be a Deal Breaker). Their ranking out of 32 companies is 21 (yr 20) and 12 (yr. 40).

Now Pacific Life come’s along with a new PDX IUL which they promote as being the best in the industry for ‘income’ payout in the future – is it? On their paper, yes. How is that so? Hocus Pocus is how! A Sham is how! Some might even call it …

“Fraud: deceit, trickery, intentional perversion of truth in order to induce another
to part with something of value (premium) to result in financial gain (profit).”

They are able to say their illustration is “true” because they include these two Bonuses and a Multiplier factor which as I explained are NOT disclosed. Despite all this these mirage bonuses and multiplier ARE included in the illustration projected values. Really! So why aren’t they revealed and explained? I was told this is because “they are listed in the illustration of one of our other IUL’s so we felt we did not need to do it again inside of this one – you should just know they are included.” Unbelievable but true.

I also think they do not include them in the illustration because they are  not explainable in that they call them “Dynamic” (different every year) so they don’t know what they could be to be able too. They are hard pressed even to give a broad generalization average if that.  But for some reason they can include them in the illustration projections “legally” because they say they are “post-cap” additions that are not regulated by the AG 49 rules.  Also the reason none of them are guaranteed they told me, is so that they don’t have to create reserves for them (to be able to actually pay them in the future).

I asked an actuary with one of the other larger companies to fact check what I have written. They replied with this table showing what the effective illustration rate is for this IUL – keep in mind that the legal AG 49 IR the co. can use is 6.17%:

Year 1 6.17%                       Year 7   12.56%
Year 2 6.17%                       Year 8   11.96%
Year 3 14.96%                     Year 9   11.46%
Year 4 14.70%                     Year 10 10.72%
Year 5 14.36%                     Year 20   9.32%
Year 6 13.33%                     Year 30   8.61%

Seriously?! I also ran the values of an illustration (M50 NSP) through my calculators, and to obtain the cash value they have for year 20 the required Illustration Rate avg. is 9.82% (for all years)! To match their projected Year 40 value the required Illustration Rate is 9.35%. But the “lawful” AG 49 illustration rate that they determined for this IUL is only 6.17%! So how are they able to jack up and use this ‘hidden’ IR for their illustrations? Frankly I don’t know – they say because these features are ‘not part of the cap’ they can add them on to it. But they can’t tell us how much each one could be – it is all a “Trust Me” illusion based on Hocus Pocus — it is NOT real! It is no wonder their income projections can be so good. Too bad there are no disclosed, stated items such as FACTS to back it up.

So what do you get in the disclosures? We know what the Annual COSTS are!  This report show’s that it is horrendously expensive – the MOST Expensive of any other policy I analyze. Out of 104 policies (with all co.’s) it is ranked #104 for cost – with 59% (52% with term mix) of the premium going toward costs (based on a M50 paying premiums 20 years). The average of all other companies is 45% with the lowest other co. at 27%. Only one other co. had costs higher at year 40 (their’s is 210% of the avg).  As for the projected performance based on what is disclosed and guaranteed (using no term insurance blend) the projected IRR at year 40 is o.56%!!  With a 59% term blend (the amount needed to make Target the same with most other co.’s) it is 2.07% (ranking is 103 and 104.  The top IUL’s with other co.’s is over 8%).  This is a “Trust Me” policy of the worst kind.

An agent sent the Co. a copy of my original analysis to them and a Product Specialist for Pacific Life emailed me asking to talk, saying: “Maybe your understanding of how the product works is limited.” I replied with the above non description of these features in their policy. They did not reply that I was wrong, instead they asked these questions:

(We) wanted to make sure that we understand correctly that any non guaranteed bonuses/enhancements are completely disregarded in your analysis? (Yes)

(We) are curious to know if any formulaic bonus/enhancement was guaranteed in the contract but opaque in its description would you ignore it? (Yes)

On the flip side if that bonus/enhancement was clearly explained but not guaranteed would you ignore it? (Yes)

Since I replied to them with my answers and a request to let me know if I was wrong in how this IUL was not being described and is being promoted, to let me know, they have not responded.

I don’t know what Twilight Zone universe they are in but in an apples-apples scenario of KNOWN variables you can put in a calculator this product is absolutely HORRENDOUS.  But you are supposed to sell/buy it as if these bonus’s and multiplier are “real” even though they are not explained or described in the feature disclosures, and you and your client have absolutely NO idea how much it may become for them in real cash value in 20, 30, 40 years. Maybe.  Without these objective factors it is ranked #104 or LAST of the policies I analyze! For performance that does not include these non-guaranteed (non disclosed) components it is also ranked #104 (or last).

So could it really be as good in the ‘real’ future as they project? If nothing else I’ve learned that companies price products to earn about the same net profit as all the other products they offer – they just dress them up a bit different. That being so how in the world could this one actually provide all these bonuses and factors which they are not willing or able to disclose that will “really” work as great as they say, with a “wink” and only a promise of “trust me”?  Do you feel good about selling/buying an IUL that uses a higher, hidden Illustration Rate that is 59% more than they say they are using? Frankly Shameful. A co. should not put out a product with any – let alone this much – missing information and unknown potential ‘realistic’ future value – especially if they have to bend if not outright break the industry agreed on rules on how to design and illustrate it.

This product reminds me of the old analogy, “a bird in the hand is worth two in the bush”. We know what the costs are – horribly expensive. We know what the cap is – on the low side. Everything else is not worth the non-guaranteed HIGH RISK of a “trust me” wish and a promise.  Take the ‘bird in hand’ because you cannot afford to wait 20, 30+ years to learn if these unlisted ‘gains’ will actually materialize.  Go with an IUL with a co. that tells you what all the features and guarantees are, to be able to do some real planning.

 This is the kind of product that gives the industry a bad name, and riles other companies up such as those in the Whole Life industry to rail against IUL. Frankly it should be AGAINST THE LAW for a co. to offer this product and for agents to sell it as is – the only reasons to do so are ignorance and/or greed.  Those who do should suffer the consequences of lawsuits by their clients.


Following are comments I received on 11 May 2017 from a member:

“I headed up product development for a top carrier for over 20 years … My first IUL product build came out in 1998 when there were about 14 companies and $50 million of target premium industry-wide.  It’s been interesting to watch this grow! 

… Comment on Pac’s PDX product – word on the street is that they are using the high product charges to increase the notional exposure to the index strategies and paying the additional interest via the black box bonus. 

A 12% cap typically costs around 5% over the long term (I’ve seen it as low as 4.25% and as high as 6% since 2002; today it is about 4.45%).  Spend 5% in charges to illustrate 6.9% and like magic your 50 year illustration looks golden.

A customer can create this leverage themselves by taking a collateral loan and putting the proceeds right back into the policy as new premium.  Ignoring the one-time premium load, the policy would now have additional costs in the form of the loan interest and more notional exposure to the index strategy.

Clearly if one has max funded the policy there is no additional room for new premium but the risk concept still holds.

So I find it ironic that the broker community in general prefers withdrawals to basis then fixed loans because they don’t want the client to be exposed to the additional risk associated with collateral loans.  So what does Pac’s PDX product do?  It effectively created a collateral loan risk profile inside the product that the customer has no choice to opt out and, as you pointed out, the bonus is not guaranteed so they could down the road choose to pocket the loads.

Copy of Report:

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