Whole Life Insurance Dividends

Whole Life Insurance Dividends Demystified, with Perry Miller

Do you love the idea of getting whole life insurance dividends, but are stuck comparing one company’s dividend performance to another? Should you go with the company that has the highest dividend rates? What do the dividend rates even mean? How do I consider how dividends will impact my long-term cash value growth? Will the company meet its projections?

We have welcomed the former Regional VP of Lafayette Life Insurance Company, Perry Miller to talk with us about whole life insurance dividends.

So if you want to see how dividends work, understand how they will impact your policy in the future, and make the best decision when starting your Privatized Banking policy now, so you’ll get the most use out of your money later, tune in below!

Where Whole Life Insurance Fits Into the Bigger Picture

Privatized Banking with whole life insurance is just one part of the bigger journey.

Privatized Banking

That’s why we’ve developed the 3-step Cash Flow System. It’s your roadmap to go from just surviving, to a life of significance, purpose, and financial freedom. 

The first stage is the foundation.  You first keep more of the money you make by fixing money leaks, becoming more efficient and profitable. 

Then, you protect your money with insurance and legal protection and Privatized Banking. 

Finally, you put your money to work, increasing your income with cash-flowing assets.

What is a Whole Life Insurance Dividend?

There is some confusion in the marketplace equating whole life insurance dividends with stock dividends, however, they’re not the same. Stock dividends are issued from investing, while mutual companies issue dividends attached to their whole life insurance product. These dividends are a calculation of a few factors, including expense and interest rate forecasts, portfolio performance, and mortality rates.

The Guarantees of Whole Life Insurance

Premium, death benefit and cash value are guaranteed by mutual insurance companies. Dividends are the icing on the cake. By charter and by law, insurance companies must pay contractual guarantees. If rates, mortality, and expenses change or fluctuate, that can affect the company’s ability to pay those guarantees.

So the dividend is like the safety valve. If something doesn’t work out as expected, company’s will lower dividends to compensate. On the flip side, if those factors do better than projected, you get to participate in higher rates as well.

Most companies can boast that they pay dividends regularly, yet do they meet the projections? Not always. However, that flexibility allows them to meet their guarantees. This mechanism allows the companies to give policy owners the certainty of the death benefit and other guaranteed provisions. So not only are the dividends a bonus, they act as an assurance that the company will meet their contractual obligations.

Current Gross dividends are around 4-6%, yet we’ll show you below why that may not be what it seems.

4 Myths of the Whole Life Insurance Dividend

1. The highest declared dividend means you’ll get more growth in the long term.

When comparing policy illustrations, the numbers can be complex. And on occasion, policies will be nearly identical, and the only major difference appears to be the dividends. On the surface, you’d think that makes the decision simple. However, dividends are not guaranteed, and as noted above are not always paid as projected. Just because company A has higher projections than company B now does not mean that will always be the case.

Dividends will fluctuate, so you cannot rely on current projections as an accurate determination of future growth. Rates you see this year can change in the next. Over time, these projections will likely even out between the companies.

When comparing policies, look at the details of the contract, policy and company history.

2. Dividend rates mean the same thing from one company to another.

When companies declare dividends, they show either either a Gross rate or Net rate. And the companies won’t specify which one they’re showing. This is yet another reason it isn’t ideal to compare company dividends.

The Gross rate is the company’s higher rate, which is calculated before considering any expenses. The Net rate is the projection after companies have calculated average mortality and expenses. Some companies believe that the Gross rate is more honest, while some believe that the Net rate is–and both arguments have some validity.

The key takeaway is that dividends between companies won’t always be a valid comparison.

3. Today’s dividend rate on the illustration means guaranteed dividend rates in future years.

Unfortunately, this isn’t the case. Fortunately, regardless of what today’s dividend rate is, future dividends are highly likely to be paid. Mutual life insurance companies like to boast their track records of paying dividends throughout the last century (or longer). That means that through wars, recessions, and pandemics, most mutual companies paid dividends.

No company, however, has paid dividends at the same rate year after year. Illustrations are meant to show what your policy could look like in the future, with current projections. So while it won’t be 100% accurate, it’s the simplest way for companies to get the message across effectively. The projection holds water because it allows you to visualize your growth while maintaining expectations.

Dividends are something you can be confident in, thanks to the structure of the contract and the ability dividends give to meet the guaranteed provisions.

4. Everyone gets the declared dividend.

Another myth of the dividends is that if the rate is declared at 5.5%, your account will increase by exactly 5.5%. In reality, the projections are the average of the payout.

Some policyholders are going to find that they’ve received more than the declared dividend, and some will receive less. This happens for several reasons, including the underwriting and age of the policy. Age, policy design, and mortality also will all have a direct effect on the dividends received.

In addition, loans and dividends can impact each other.

From year to year, loan rates will change based on dividends, though whether the rates are fixed or variable is determined at the time of the loan.

Also, outstanding loans can change the dividend received depending on the company.

Direct recognition

When policy loans come into play, your dividend can be affected.

Direct recognition is when the dividend recognizes an outstanding loan and pays a lower dividend on the portion of the cash value borrowed against.

Non-direct recognition is when the company does not recognize an outstanding loan, and continues to pay a full dividend on all cash value, even the portion borrowed against.

Usually, direct recognition companies will have a higher declared dividend. Meanwhile, non-direct recognition companies will have a lower declared dividend, to accommodate for future loan activity.

Look Deeper than Whole Life Insurance Dividends

It’s important to look deeper than your dividend rate to make your insurance decision. All of these mutual companies are very good, and the dividend rate changes very little about your policy performance in the long run.

If you’re interested in the benefits of a policy, the best thing you can do is make a decision. The policy you would have bought ten years ago is better than the policy you could buy today. Don’t paralyze yourself with indecision. Establish good savings habits today, and you’ll get the most out of your policy, regardless of dividends.

Who is Perry Miller?

Looking to make his mark in the financial world Perry earned a B.S. in Business Economics and Finance, and then an M.B.A. with a focus on Management and Business Economics. He first started helping individuals and small businesses maximize their cash flow and protect their assets. For the last 16 years, he has served as the Regional Sales VP for Lafayette Life Insurance Company. He has been fortunate to work with talented advisors who have helped make his region one of the most productive in the country. For the last six years (with 2020 being the exception) he has hosted the advisor-focused Colorado Business Retreat.

In June of this year, he retired from Lafayette Life and now owns a boutique financial practice focused on protecting retirement assets and planned charitable giving. He continues to speak and teach classes on a broad scope of financial topics.

Ready to Start Your Life Insurance?

Are you ready to move forward with Privatized Banking, alternative investments, or cash flow strategies to coordinate your finances so that everything works together to improve your life today and accelerate time and money freedom?

Book an Introductory Call with our team today: https://themoneyadvantage.com/calendar/

Rachel Marshall

Rachel Marshall is the Co-Founder and Chief Financial Educator of The Money Advantage and President of Marshall's Insurance and Financial Services. She is known for making money simple, fun, and doable. Rachel has built a team of licensed professionals (investment advisors, insurance agents, attorneys, tax strategists) to help her clients create time and money freedom with cash flow strategies, Privatized Banking, and alternative investments. Rachel is the co-host of The Money Advantage podcast, the popular business and personal finance show. She teaches how to keep more of the money you make, protect it, and turn it into cash-flowing assets.
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