Dividend announcements

[Lloyds of Lubbock]

Being that dividends come from 3 places, interest in excess of the guarantee, mortality better than guaranteed and an expense factor, it would be a total sh#tstorm not to declare a dividend.
Yet the Board of Directors still needs to approve it.
Next time you are running an illustration, take the dividend interest rate down to the guarantee, you will see how much of the dividend come from mortality and expense savings.

 

[Allen Trent]

No offense, but that's BS. Most likely? The foundation of a mutual insurer is to pay dividends. Insurance companies have had plenty of opportunities to not pay dividends. The "Big Four" have paid dividends for well over 150 years -- through world wars, civil war, the Great Depression, stock market crashes, inflation, stagflation, good, bad, and so on. Obviously they are not non-profits, but they are mutual companies. That means something. The stock companies say it doesn't, but they have to say that. Take out the dividend, make it zero, and with a mutual company, you still have a company that returns capital to policyowners.

Completely agree with everything you said.

But made me think, isn't that all because they priced the product up front to include extra premium charged to give back later as a dividend. Isn't this the same reason the IRS doesn't consider a dividend taxable? It is a return of overcharged premiums.

 

[Lloyds of Lubbock]

A dividend is considered a return of premium.
It does encompass more than that.
Your dividend is your share of the divisible surplus in relation to your contribution to that surplus.
A dividend can be bigger than the annual premium you have been paying.
It is not an overcharged premium.
The premium is based on a set of guarantees and if the company outperforms these guarantees, it creates a dividend.

 

[scagnt83]

Completely agree with everything you said.

But made me think, isn't that all because they priced the product up front to include extra premium charged to give back later as a dividend. Isn't this the same reason the IRS doesn't consider a dividend taxable? It is a return of overcharged premiums.

You would not say that about equity dividends. Did those investors "overpay" for their shares?

It is sharing in the profitability of that company, based on your investment in that company.

Not much different with WL.

 

[Allen Trent]

You would not say that about equity dividends. Did those investors "overpay" for their shares?

It is sharing in the profitability of that company, based on your investment in that company.

Not much different with WL.

completely agree. I just recall some bizarre theory from IRS that Life dividends arent taxable because they were actually priced into the product design up front. I recall an example given of a carrier who offered both a non-participating policy & participating policy. the participating policy charged nearly double the non participating policy & thus was the excuse that a substantial portion of the dividend was actually the overcharged premium planned (invested for many years) & given back

I never liked that entire justification as we have all seen carriers lower or discontinue dividends all together