Bank on Yourself® is the creation of Pam Yellen and is a process of using whole life insurance as a means to finance major purchases. The claims made by Bank on Yourself® suggest that following the program will unlock hidden wealth secrets employed by savvy investors and business people. But does it work? We get …
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First, I feel the need to provide context for this post. 99% of our clients want to use cash value life insurance as an asset class. Which means people need to distinguish whole life insurance from indexed universal life insurance.
Yes, there are other products.
But none that we feel are worthy of consideration.
Which is better?
What are the pros and cons of each? Why would a person use one versus the other?
We’ve reported on operational cash flow among life insurers in the past and note that we hold this metric in high regard for a multitude of reasons.
Our philosophy is that operational cash flow shows us true profitability of a life insurance company, especially among whole life focused insurers. Why is that? Well, it's primarily because life insurers have a unique income reducing option at their disposal with policyholder dividends.
Investment income is a huge profit driver for life insurance companies.
We've spent a lot of time analyzing and reporting on overall investment yield trends for life insurance companies, but that analysis only compares the raw yield insurers achieve on their managed asset pool. It's possible that a declining yield simple indicates a de-risking strategy.
Investment income is not necessarily declining and the insurer is under no real financial trouble. In fact, we've made this argument several times when discussing these trends and others.
So if we instead look at
A few weeks ago a client of ours (we’ll call him Ted to protect his identity) reached out to us looking to take a policy loan from a whole life policy he owns.
A unique and, arguable rare, opportunity arrived on his door step (literally) and he needed cash. The interesting part of this story, though, is not that whole life cash values were available to him so that he could seize the opportunity but rather that he had plenty of other money he could have used instead.
There was just one problem,
Operating cash flow is the cash generated by an insurance company prior to the inclusion of investment income generated by managed assets. Under insurance statutory accounting rules, this is profits generated after deducting operating expenses. Insurers that have issued participating policies can cover planned dividend payments with operating cash and/or investment income.
We look at operating cash as a secondary indicator of insurer operating health. I say secondary because it commonly affects policy performance far less significantly than investment performance on managed assets.
Whole life insurance dividend changes often happen once per year and we generally get excited near the end of the year when most companies announce these changes. We’ve been tracking and announcing changes when they become available for the past several years and will continue to do so in the future.
The anticipation for the announcement of the following year’s dividend focuses mostly around evaluating how well an insurance company is doing—especially with its block of participating life insurance—and how these results affect the dividend interest rate. We don’t get a lot of under-the-hood information about whole life insurance, so any metric we can use to look at how things are going is always appreciated, and dividend interest rates are one of those metrics.
New York Life has announced its plans to pay $1.43 billion in dividends to its participating policy holders. This dividend payout is an increase of $109 million over last year.
In a very quiet announcement, the company reported on a number of positive sales results of various products–including 10% sales growth of its whole life product through Q3.
What does this mean for the dividend interest rate?
National Life Group of Vermont announced its plans to pay $83 million in dividends to its participating policy holders. In the announcement National Life Group's President and CEO, Mehran Assadi remarked at NLG's history going back to its very first dividend payout of $11,260 back in 1855.
So where does this leave the dividend interest rate?
Ohio National Life has announced the dividend interest rate for 2014. In an announcement from President and CEO Gary “Doc” Huffman, ONL noted its great expense management, strong portfolio performance, and very favorable mortality experience. No word on what the total dividend payout is for the entire company (not that it matters much to any single individual).
So what’s the new rate?
