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With all the major whole life dividend announcements now public (for the most part), we wanted to take some time to review each company and how they plan to enter 2021. Dividends paid on participating whole life insurance play a crucial role in our everyday life because they are the key driver behind cash-rich whole life policies. This is why we track this information so closely.
I'm going to do this in conjunction with a blog post published earlier this year analyzing whole life dividend activity at most of the companies I'll discuss today. This way we can come full-circle on the “predictive” lower-band calculation we did as part of that analysis.
Northwestern Mutual 2021 Whole Life Dividend
Northwestern announced earlier than anyone else. This is common among mutual/whole life-focused insurers. The Quiet Company announced a behemoth $6.2 billion dividend payment plans for 2021 in late October but interestingly neglected to initially comment on the company's dividend interest rate. That rate will remain the same for 2021, which is great news.
Even more noteworthy was the list of several praise-worthy accomplishments Northwestern achieved in 2020. While most of the financial world (including the insurance industry) struggled with the challenges posed by Covid-19, Northwestern managed to increase both new clients and permanent life insurance sales throughout 2020–accomplishments no shared with their peers.
For a company that experienced a rather sharp negative trend in the dividend interest rate, this is welcomed good news, and the folks in Milwaukee should be proud.
We noted in our dividend analysis that the Northwestern dividend interest rate could drop to a new low 0f 4.81% and this would be within their normal range of movement for the past 10 years. Luckily for Northwestern policy owners, the trend line flattens a bit headed into 2021.
The Guardian Life Insurance Company 2021 Whole Life Dividend
Delivering positive news that came strangely late, Guardian announced its dividend interest rate will remain the same for 2021 at 5.65%. Announcing the company's first every plans to pay policyholders a total exceeding $1 billion, the New York City-based life insurers were very quiet about this great news for a while. We're not sure what motivated this uncharacteristic behavior, but the company did just go through a major executive change with the retirement of its former CEO.
In any event, the news is good. Guardian's dividend interest rate's significance is a bit of a mixed question these days since the introduction of their Indexed Participation Feature, which allows whole life policyholders to allocated a percentage policy proceeds to an indexing account that sets the dividend rate for the policy year. This feature works similarly (but not exactly) to index accounts found on indexed universal life insurance policies.
We noted in our analysis that Guardian could drop to a new low of 5.41%. Guardian policy owners are likely happy to discover that the trend line flattens a bit heading into 2021.
MassMutual 2021 Whole Life Dividend
MassMutual announced its plans in early November to pay policyholders a combined $1.7 billion in dividends. The new dividend interest rate drops 20 basis points to 6.00%. While probably not the news MassMutual was hoping it could deliver this year, this isn't remarkably bad news combing from the BlueChip Company.
Our analysis did note that a new dividend interest rate below 6.10% would be out of MassMutual's trend range for the past 10 years. They are a company with less volatility in the dividend interest rate and so had much less wiggle room through this analysis. This news is mixed. As MassMutual potentially faces forces that push them closer to their peers in terms of dividend changes, it's likely the trend line dividend interest rates steepens. Despite that, they still hold a competitive position within the industry for anyone seeking cash-rich whole life insurance.
New York Life 2021 Whole Life Dividend
In mid-November, New York Life announced its plans to pay policyholders $1.8 billion in dividends, which represented a $100 million decline in total dividend payout compared to 2020. The announcement did not immediately include information on the 2021 dividend interest rate, but we later learned it will change to 5.8%, which is a 30 basis point reduction from 2020.
Our analysis left New York Life with zero room to move the dividend down without falling outside of its normal range. The company had achieved a mostly positive trend over the past several years. Unfortunately, things are sliding in the oppositive direction for the Company You Keep.
Penn Mutual 2021 Whole Life Dividend
Penn Mutual's dividend announcement has been a bit of an open secret for a few weeks now. We received notice through an internal email (sent to all licensed brokers, we have no special relationship) announcing a reduction of 35 basis points from the 2020 dividend interest rate. This makes the new dividend interest rate for 2021 5.75%.
We stood ready to make the official announcement in The Insurance Pro Blog but delayed it due to our policy to hold the announcement until the company makes an official announcement/press release. We're still waiting on that official public announcement. That said, enough time passed at this point, and the information is more or less public.
Our analysis left Penn Mutual with little wiggle room regarding its dividend announcement due to the company's trend of rarely changing the dividend interest rate. The lower band to remain within the 10-year trend was 6.07%. The company fell way below that.
Again, some companies will face forces that push them closer to their peers, and Penn Mutual is one of those companies. What will be interesting to watch from here is how much closer the company draws to its peers (if at all).
That said, a company we have praised many times in the past looks to have had a rough go in 2020.
Ohio National 2021 Whole Life Dividend
In mid-November, Ohio National announced its plans to pay policyholders around $100 million in dividends. This payment is around the same payment as 2020. The dividend interest rate, however, fell 50 basis points, which is substantial but not the biggest dividend interest rate reduction we've ever seen in a single year.
Our dividend analysis told us that Ohio National could reduce the dividend by 18 basis points and remain in its normal range for the past 10 years. Sadly, that didn't happen.
Ohio National has had a rough go of things for the past few years and it looks like 2020 played no role in throwing the company a break. The company appears to remain well-capitalized and certainly capable of paying claims. The company will likely continue to face challenges in terms of asset yield just like all of the other companies mentioned in this blog post.
Other Whole Life Companies Dividend Activity
There are other companies that issue dividend-paying whole life insurance, but they rarely make announcements about the dividend interest rate. For this reason, we do not include them in our analysis and generally do not cover their annual dividend announcements (if they occur publicly).
While some of these companies could be a good fit for those in the market to buy whole life insurance, we do not have adequate information on them to report in this context.
Honestly I am baffled how most of these companies DIR are north of 5% and dare I say 6% in an environment when interest rates have been so low for so long. I understand DIR isn’t the end all be all. Nevertheless over time the regression to the mean has to come sooner or later as we compare these carriers.
There’s a lot of headroom from other lines of business, true returns of premium when mortality and operating expenses come in lower than estimated in the base policy, and the “interest rate based on” trick. The last is where the policy interest rate is actually lower than, say, 4% but is “based on” 4%, representing an approximation of 4% after paying income tax.
It doesn’t really matter because many people simply reinvest the dividends, so the company ends up better off with the more dividends they pay.
I am happy I found your web site. You have filled in a lot of the blanks on my understanding of whole life, especially on direct v non-direct recognition dividends.
I am very familiar with Universal Life and how it is illustrated to provide retirement income: large premium, minimum non-MEC death benefit, pay for 20 or 25 years, then do partial surrenders to recover basis, switching to loans for 20 or 25 years, keeping the policy in force to maturity.
I was eager to read your material on using a participating whole life for retirement income. However, you did not get into the mechanics. So here are the assumptions:
45 year old male nontobacco, non-MEC policy, $20,000 premium per year, minimum non-MEC death benefit, participating whole life policy, premiums until age 67. Give that, how would he get a level cash flow out of the policy for 25 years, keeping the policy in force to maturity? What would the dividend option be? I assume it would be PUAs. Would there be a PUA rider, to get more money into the policy? In retirement exactly how would he get the money? Surrender PUAs? Loans? Direct or non-direct dividend recognition? Thanks. Really appreciate your material and your answer.
Hi David, happy to hear that you are glad to have found the web site. We dive into mechanics on several blog posts. Unfortunately, I don’t have the time to walk through a specific example as detailed as you’re asking here, but you can find information that speaks to pretty much everything you mentioned through various blog posts on this site.
What is the true dividend payout of these big companies? Whether they advertise 5 or 6% what do they truly pay out? It can’t be 6%. No way.
How do we find out what they truly paid out?
Hi Larry,
There is no one answer to your questions because you are seeking (what I believe is) a net payout expressed as a percentage of some basis. This will vary considerably from policy to policy. This varies because age of the policy, age of the insured, type of product focus, and design of the policy (to name a few variables) all matter when it comes to just how much of a dividend the policyholder receives this year.
But, to more squarely address the point I think you’re getting at, the long-term (20+ years) annual return on premiums expressed through the net cash surrender value should come out to something close to 4% for most companies.