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Whole Life Dividends Explained

John "Hutch" Hutchinson | Founder, Banking Truths



Certain kinds of life insurance policies pay dividends to their policyholders. Generally, these dividend-paying whole life insurance policies are “participating” policies issued by mutual companies. Since a mutual insurance company is owned by its insurance policyholders, it is customary for these mutual insurers to pay dividends annually back to its whole life policy owners.


Are Whole Life Dividends Guaranteed?

Whole life dividends are not guaranteed to be paid, but every mutual company still in existence has a massive surplus and has found a way to pay a dividend every year for the last 150+ years. Also, your dividends once paid, can be added to your cash value, raising up your whole life policy’s guaranteed growth.


A Mutual Company’s Dividend Interest Rate

Is a whole life policy’s dividend rate the same as the internal growth rate? No, the dividend interest rate is not the internal growth rate of the underlying whole life insurance policy. Just because a mutual insurance company declares a policy dividend rate of 6%, it does not mean your policy cash value will grow by 6% that year. That said, it may feel similar if you factor in the tax-advantaged nature of whole life cash value.


The other misconception about whole life dividends is that the dividend interest rate is the only component that makes up a dividend. As the word dividend suggests, you are actually part-owner of the company that issued your policy. Therefore, you participate in all three of these distinct aspects of the company’s performance described below:

  1. Dividend Interest Rate Credit Whole life policyholders share in the yield from the insurance company’s entire investment portfolio. However, the declared dividend rate is simply one factor in determining your policy’s specific dividend payout.

  2. Mortality Credits The mortality component of the dividend is expressed as a credit for having fewer insurance claims than originally anticipated when they underwrote all outstanding policies. This includes profits from the mutual company’s other lines of business (term insurance, disability insurance, annuities, etc.).

  3. Company Expense Debit As part owner of a mutual company by the nature of being a whole life policyholder, you share in the company’s operational expenses. How efficiently the company is managed each year determines how much or little they deduct from your dividend.

There are more pieces to the dividend puzzle than the dividend interest rate. As much as we would like to quantify things simply in our minds, whole life dividends are a lot more complex than the declared rate. In fact, from 2021-2022 one major mutual company recently kept their declared dividend interest rate exactly the same, but they negatively adjusted their mortality component for an increase in COVID-related deaths.


Remember that there is no consistent formula between companies when it comes to what part of the year they credit their dividends with interest. Not to mention, different mutual insurance companies vary with how much of the dividend pool each policyholder is entitled to based on their current cash value, death benefit amounts, rating class, and tenure in the policy.


If you are trying to figure out who the most competitive company is, it is recommended to run the exact same premiums through several different mutual companies’ illustration software to see who is currently the most generous with their dividends. Equally important is a company’s guaranteed growth structure since this is the rails that compounding dividends will ride on.


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