Whole Life Dividend Variation Analysis

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Whole life insurance analysis

You can find the latest Whole Life Dividend Analysis here.

Whole life dividends are commonly reviewed and compared among companies. For the most part, all we see are current year rates compared. On the rate occasion, someone might bring up the average dividend interest rate among carriers over a certain time period—most often 20, because the people in marketing vaguely remember something about sufficient sample sizes from the one elementary stats class they took in college, problem is they’ve misapplied the rule.

Why can’t We go back 20 Years?

Going back 20 years poses problems because we can’t make the suggestion that investment environment, especially one so significantly grounded in debt investing and as a result is heavily interest rate sensitive, is the same over the entire 20 year period. It’s also entirely possible that much of the staff involved in making investment decisions and managing general account assets has largely turned over.

For these reasons, it’s not prudent to extend our reach of historical performance much past 10 years. This gives us a closer look at what is going on in the more immediate past.

Why Analyze Variations?

Analyzing variance allows us to infer based on trends that we recognize. For example, if we take the average dividend interest rate of each company over a 10 year period we can evaluate who has, on average, maintained the highest dividend yield on policies, but we don’t have any clear picture of how that changed over time. Is it possible that the highest average dividend rate is propped up by an exceptionally good year? This is a common error made by people who simply look at averages and try to infer with that data alone.

Further, since we focus specifically on the use of whole life insurance as an asset building and income producing strategy, it’s very helpful to have a more constant dividend, vs. one that bounces around a lot.

In addition to this, reviewing the dividend rate itself is helpful rather than base policies at a given death benefit for a given age, and gender because it allows us to control more variables.

The Process

We looked at historical dividend rates over the last 10 years for what we would strongly argue are the top 7 whole life carriers in the industry. They are: The Guardian, MassMutual, MetLife, New York Life, Northwestern Mutual, Ohio National, and Penn Mutual. We wanted to include American United Life (part of One America) but they opted to ignore our request for a dividend interest rate history.  All data was taken from carrier provided resources.

We took the dividend rates and calculated averages, standard deviations, and change from year one to year ten. The average is of relatively little use to us, but we did want to know how that worked out. The standard deviation let’s us know the variability of the dividend rate during this time, the larger the number the more the dividend rate has tended to change year over year. The year one to year ten change is a review of the dividend trend. In truth a highly variable (high standard deviation) dividend rate with a positive 10 year trend is not really a problem—in fact that would be good news. A highly variable dividend rate with a negative trend, on the other hand, would be problematic.

One Quick Note on Gross vs. Net Dividends

Some of the quoted dividend rates are gross rates while others are net rates. This is the primary reason why looking at the average is mostly useless. But, the fact that this isn’t constant across the board does not effect either the standard deviation or trend review as these only review changes within company numbers.

For example, it doesn’t matter if I was going to measure the standard deviation of height distributions between two groups of people and choose to measure one in inches and the other in centimeters. While it would be odd, it wouldn’t nullify the results as we’re comparing the same type of data (ratio data), and all we’re doing is reviewing how it changes.

The Results

First we’ll look at the table for standard deviations:

All numbers are decimals of a percent

whole life dividend

Penn Mutual and the Guardian have the lowest amount of variation in their dividend interest rate over the last 10 years while Northwestern Mutual by far has the most. In fact, at 0.83% they are almost double the average of the group.

But, as we already covered above, this alone doesn’t necessarily mean we can make definitive inferences about the superiority of dividend stability or performance of Penn Mutual or the Guardian and the lack thereof at Northwestern. We still need to review the 10 year trend.

All numbers are decimals of a percent

whole life insurance comparison

These are really interesting results. Penn Mutual and Guardian are the only two insurers with positive 10 year trends. The fact that most everyone else has a negative trend isn’t entirely shocking given current interest rates. What is interesting is Northwestern Mutual’s again being the widest change and again well above the average—way more than double this time.

What is also interesting here is that New York Life, Ohio National, and Northwestern Mutual have noted some exceptionally strong years within this 10 year period, and despite this, they’re dividend interest rates have been on the decline.

What we Can Infer

We can note the superlative performance at Penn Mutual and the Guardian with regards to keeping their dividends pretty constant and on the rise. MassMutual deserves recognition for great performance as well since their variation wasn’t all that much higher than the top two and and their 10 year trend is very slightly negative.

The biggest concern would be Northwestern Mutual as they appear to almost be an outlier. This doesn’t seem to reflect some of the positive performance they’ve been happy to report. And while we wouldn’t suggest its any sign of weakness—we can assure you that the Quiet Company is very sound financial speaking—it doesn’t call into question just how great a return we can anticipate from Northwestern moving forward. We suspect this is a direct result of their sheet size of issued policies. They payout a lot of dividends, but they also have the largest number of policies on which they have to pay dividends.

Only one Piece of the Puzzle

It should surprise no one that I’ll declare this piece of information useful, but by no means a single source from which anyone should base a purchasing decision. There are many other factors included in evaluating a company and or its products. There’s even more evaluation that ought to be done on the topic of whole life dividends, but that will have to wait for another day.

About the Author Brandon Roberts

Brandon launched the Insurance Pro Blog in July of 2011 as a project to de-mystify the life insurance industry. Brandon was born in Northern New England, and he currently calls VT home. He attended Syracuse University and graduated with a triple major in Economics, Public Administration, and Political Science.

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