- 6,457
So you are telling me that when I read a document published by an insurance company about it's product and it says something like: This is a participating whole life policy and dividends are guaranteed at a minimum of x%, that is not true?
Non Par Whole Life ...........
- Thread starter rousemark
- Start date
-
- Tags
- whole life
- 16,881
There is always something new to learn in this biz. But if what you are saying is true that would be the first one I ever heard of. All the insurance licensing courses drum into your head that dividends are NEVER guaranteed. Not ever.
- Thread starter
- #13
You are going to have to produce that policy to see what context that statement is made. In the meantime, this is from the NY state Government. Notice th4 wording under participating WL insurance:
Life Insurance - Top Ten Questions: Whole Life Insurance
Maybe there is a product out there tht manages to guarantee dividends but every par policy I have seen in the last 44 years has not been guaranteed.
- 11,277
Do you know how a dividend is declared and calculated? Once you understand this, you will know precisely why they are never guaranteed.
Dividends are participating in the insurance company's profitability. There are three major factors to that profitability:
1) General account investment performance
2) New product sales that brings in more premium revenue and further expands the pool of favorable insurance risks.
3) Favorable mortality experience (basically less people died than was originally predicted).
Each of those three things (particularly mortality experience) changes every year and affects the annually declared dividend (as long as it is declared every year - again, it's not guaranteed to be declared).
- 6,457
If I can find the document(s) again, I may very well owe Rousemark an apology if I am remembering them incorrectly.
As far as review courses, the ExamFX book I am using, P53, says only the following about dividends:
Since dividends are a return of unused premiums, they are not considered income for tax purposes. When dividends are left with the insurer to accumulate interest, the interest earned on the dividend account is subject to taxation as ordinary income each year interest is earned, whether or not the interest is paid our to the policyowner.
On page 86 (definitions) it shows me:
Participating Policies (Par) -- Insurance that pays dividends to policyholders.
As far as review courses, the ExamFX book I am using, P53, says only the following about dividends:
Since dividends are a return of unused premiums, they are not considered income for tax purposes. When dividends are left with the insurer to accumulate interest, the interest earned on the dividend account is subject to taxation as ordinary income each year interest is earned, whether or not the interest is paid our to the policyowner.
On page 86 (definitions) it shows me:
Participating Policies (Par) -- Insurance that pays dividends to policyholders.
- 11,277
Non-par whole life can have a guaranteed INTEREST rate, but will not guarantee annual dividends.
A lot has to do with the age of the insured when taken out. If it's going to be held for 40-50 years usually always par. for shorter periods of time as with older people non par may be better. If the premium is close usually par if the premium is a lot higher for the par then look at the non par. Sometimes in that case you can get a lot more face amount with the non so if death occurs early you have the higher DB. Most everything has it's place.
- Thread starter
- #18
You will not owe me an apology in either case. You haven't done anything to offend me. Page 86 would be more correctly worded, "Insurance that MAY pay dividends
- 6,457
Post 7 is updated with 3 actual numbers in dark green.
The 1974 illustrations show the Non-Par policy as a better cash generator by age 65. (That includes cash from a "special incentive" to encourage me to buy the policy-that cash is NOT included in the ratios presented in post 7). The fact of the matter 43 years out is that the Par policy was far and away the better buy.
I can divide the 2015 DB of the Par policy (I do not have any 2016 numbers) by total premiums paid for BOTH policies for 43 years and still have a better DB per premium dollar paid than I get for just the non-par $10K against the premiums paid for it.
The 1974 illustrations show the Non-Par policy as a better cash generator by age 65. (That includes cash from a "special incentive" to encourage me to buy the policy-that cash is NOT included in the ratios presented in post 7). The fact of the matter 43 years out is that the Par policy was far and away the better buy.
I can divide the 2015 DB of the Par policy (I do not have any 2016 numbers) by total premiums paid for BOTH policies for 43 years and still have a better DB per premium dollar paid than I get for just the non-par $10K against the premiums paid for it.
Last edited:
- Thread starter
- #20
I see what you did with the dark green.. But what is the premium comparisons between the two plans? If you were paying more for the par, then you would expect it to have more total CV and DB 40 years down the road unless the company just completely blew thier mortality and interest rate projections... Oh, and one other thing from post 7.. As a general rule, if written by the same company, the non par does not pay more than the non par so that isnot a factor in the equation.
Similar threads
