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  • The Premium Deposit Account Agreement is not approved for sale in NY.

Premium deposit account agreement

Our Premium Deposit Account (PDA) Agreement provides the opportunity to fund a life insurance policy through a series of fixed payments. Interest is earned on the money in the PDA and is applied at the time of each premium payment.

Essentially, the PDA lets clients make one to three payments into a life insurance policy without violating the Internal Revenue rules on Modified Endowment Contracts (MECs).

Benefits

Ensures worry-free premium payments

PDA automatically makes the annual premium payment, so clients can be confident their payments will be made.

Helps clients avoid MEC status

Avoid having the contract become a MEC by spreading out the premium payments over the duration of the PDA.

Increases total premium paid into the policy

Because the premium dollars are deposited into an account that earns a fixed interest rate when premium is applied to the policy, the money being paid toward premiums consists of both interest and principal. This allows for a potentially increased amount of premium dollars paid into the policy.

Details

  • A PDA can only pay premiums for one policy
  • The PDA cannot be established prior to a policy being in force
  • The owner of the PDA Agreement and the life insurance policy must be the same
  • Minimum deposit into a PDA (minimums do not include the initial premium payment):
    • Ages 0-17: $2,000
    • Ages 17 and older: $5,000
  • Must have at least two years of scheduled premium payments paid from the PDA, but no more than 10 years of scheduled premium payments can be paid from the PDA. This does not include the initial premium paid at issue.
  • A total of three deposits can be made into the PDA
  • The PDA balance earns interest, which is applied at the time of each premium payment. The interest earned will be reportable as interest income. We will issue a 1099 each year interest is earned and the PDA is in force.
  • PDA interest is dependent on the product and number of annual planned premium payments from the PDA. The same interest rate is applied for all payments. This does not include the initial premium paid at issue.
  • If the PDA is terminated, interest will be paid on the balance of each deposit made to the PDA and is calculated using the Minimum PDA Guaranteed Annual Interest Rate from the later of:
    • The date of deposit into the PDA or
    • The last premium payment made from the PDA
    • The Minimum PDA Annual Interest Rate is 0.50%1

How it works

  1. Your client makes a lump-sum payment into the policy, along with an amount equal to the first-year premium of the policy. 
    • The lump-sum payment will go into the account that is designated to earn interest at a fixed rate
    • The first-year premium is applied to the contract at issue
  2. Each year on the policy anniversary, the annual premium is paid from the PDA. This payment consists of accrued interest in the PDA and a portion of the principal making up the balance of the annual premium.

Funding life insurance with one payment

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By making a single deposit, your clients can take tax-advantaged distributions later.

Learn more

PDA highlights

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Show a single-payment solution without creating a Modified Endowment Contract (MEC).

See fact sheet

Next steps

Additional resources available on our secured site

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1. Interest may vary by state. PDA interest is dependent on the number of annual planned premium payments paid from the PDA. The same interest rate is applied for all payments. If paying 11 premiums, one premium must be paid at issue; therefore, a maximum of 10 years of additional premiums may be deposited into the PDA.

Additional agreements may be available. Agreements may be subject to additional costs and restrictions. Agreements may not be available in all states or may exist under a different name in various states and may not be available in combination with other agreements.

The Premium Deposit Account Agreement has restrictions that may result in termination of the agreement prior to the payment of all of the planned premiums and may result in the loss of expected interest. Interest credited when used to pay policy premiums will be reported as taxable income to the policy owner. 

In some states, interest may be paid upon death or PDA termination and will be calculated using the Minimum PDA Annual Interest Rate.

Life insurance products contain fees, such as mortality and expense charges (which may increase over time), and may contain restrictions such as surrender charges. Variable life insurance products contain fees, such as mortality and expense charges, and may contain restrictions, such as surrender periods. There may also be underlying fund charges and expenses, and additional charges for riders that customize a policy to fit individual needs. Charges and expenses may increase over time. The variable investment options are subject to market risk, including loss of principal.

The Policy Design chosen may impact the tax status of the policy. If too much premium is paid, the policy could become a modified endowment contract (MEC). Distributions from a MEC may be taxable and if the taxpayer is under the age of 59½ may also be subject to an additional 10% penalty tax.

This information should not be considered as tax or legal advice. Clients should consult their tax or legal advisor regarding their own tax or legal situation.

Insurance products issued by Minnesota Life Insurance Company

Policy form numbers:  14-20005 and any state variations; ICC19-20204, 19-20204 and any state variations; ICC18-20150, 18-20150 and any state variations; ICC18-20149, 18-20149 and any state variations

The information presented above is solely intended for use by financial professionals. Such information is not intended for public consumption or dissemination.

For financial professional use only. Not for use with the public. This material may not be reproduced in any way where it would be accessible to the general public.

DOFU 11-2022

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