Dividend Calc for borrowed funds / policy loans

[Furop1281]

First time poster and learning about cash value life insuance.... thanks in advance.

I’d like to clarify my understanding how dividends are calculated for a SHORT TERM (~5-10 month) policy loan.

Assume direct recognition at 8% loan rate with borrowed dividend rate at 7.55% (so 45bps loan spread). And unborrowed dividend rate of 5%. And also assume policy anniversary date of 6/1. (This example is specifically for a Northwestern Mutual ACL policy but would be happy to hear what other carriers do as well)

Based on an example I have seen the dividend rate calc for the borrowed funds is based on beginning of policy year loan balance (so 6/1 in my example). So does that mean If i take out loan on 7/1 and pay back 5-10 mos later I would receive the dividend on the unborrowed dividend rate - i.e 5%? And if I were to take out the same loan on 5/1 and have it outstanding for 5-10 mos I would receive the dividend rate on the borrowed dividend rate - i.e. 7.55%? Does either the ending balance or how long I have the loan outstanding ever factor into this equation?

Thanks.

 

[Lloyds of Lubbock]

Remember, these rates are not rates of return.
They are a starting rate in a formula used in calculating your dividend.
These formulas are not uniform between companies.
Their are other factors, such as mortality and expense.
If you have a direct rec company and take a loan out for less than a year, you dividend will be pro rated.
Are you an agent or consumer?
If you are an agent, get in touch with a company actuary.
If you are a consumer ask your agent to get a detailed response from an actuary.
If this info is really important to you, go to the source.