Dividends

Nov 8, 2007

  1. David C
    Offline

    David C Guru

    Posts:
    480
    Likes Received:
    2
    Other than the obvious what is the reason that some companies like Northwestern Mutual reduce dividend payments on policies with loans?
     
    David C, Nov 8, 2007
    #1
  2. djs
    Offline

    djs Super Moderator Moderator

    Posts:
    6,679
    Likes Received:
    72
    State:
    California
    Okay, I'll bite. Other than the obvious, how much more do they reduce it? Is it reduced dividend payments, or extra charges?
     
    djs, Nov 8, 2007
    #2
  3. David C
    Offline

    David C Guru

    Posts:
    480
    Likes Received:
    2
    They reduce the dividends credited to policies with loans. Why? It's a loan, paid back with interest I assume, so why the reduced dividend?
     
    David C, Nov 8, 2007
    #3
  4. JMO Fan
    Offline

    JMO Fan Guru

    Posts:
    403
    Likes Received:
    1
    The lower dividends presume the company could earn more money if it could invest the loaned cash.
     
    JMO Fan, Nov 8, 2007
    #4
  5. LGilmore
    Offline

    LGilmore Guru

    Posts:
    4,099
    Likes Received:
    148
    State:
    Washington
    Do you mean using the dividends to reduce the loan? They cannot "reduce" dividends for one individual over another, that's not how they work. So what do you mean? A change in the dividend election? from pua, to loan reduction? or dividends as cash?

    If it's a loan reduction, that's just a way to reduce the loan internally...

    Are you familiar with a dividend paying policy?
     
  6. CHUMPS FROM OXFORD
    Offline

    CHUMPS FROM OXFORD Guru

    Posts:
    10,261
    Likes Received:
    49
    State:
    Ohio
    The dividend scale of a life policy is not affected by the existence (or non-existence) of a loan. However, many years ago, this was not the case.

    As an example, if two identical policies were issued in 1997, and one owner takes out a large loan...both of their dividends will be identical.
     
  7. James
    Offline

    James Guru

    Posts:
    2,152
    Likes Received:
    0
    http://www.nmfn.com/tn/insprods--life_select100_pg

    This is what I'm thinking he is asking about, don't have a specimen contract for this specific WL from NM, but all the brochures of there WL policies reads the same. I would have to see an actual contract language, this is only saying there is an affect, likely a 8% loan will wipe out the average dividend yield, a real loan interest of 0 to 2%.
     
    James, Nov 8, 2007
    #7
  8. CHUMPS FROM OXFORD
    Offline

    CHUMPS FROM OXFORD Guru

    Posts:
    10,261
    Likes Received:
    49
    State:
    Ohio
    "affects the amount of dividends you will receive"

    I believe they are referring to past dividends that have accumulated and not the impact on future dividend projections.
     
  9. David C
    Offline

    David C Guru

    Posts:
    480
    Likes Received:
    2
    All I know is that I've been told some companies, (NM) being one of them, pay less dividends on policies that have loans. I know it happens, I know what it's called - it's called Direct Recognition, I was wondering what the company's reason is for doing this. I think JMO Fan is probably correct.

    Don't know about other companies but I know that Ohio National and NYL do not use Direct Recognition.

    LGilmore-I am.
     
    David C, Nov 8, 2007
    #9
  10. David C
    Offline

    David C Guru

    Posts:
    480
    Likes Received:
    2
    FYI Use the link James provided, go to upper right corner, type in direct recognition in the search bar. Click the first link they show, second paragraph.
     
    David C, Nov 8, 2007
    #10
Loading...