I was wondering if someone could help me understand exactly how a dividend is paid and applied to an individual policy. I’ve been in the business about 5 years and started to integrate whole life about 2 years ago. While I have a good enough understanding about how these policies perform on a non-guaranteed vs. guaranteed basis based on the IRR report, I wanted to educate myself a bit more on HOW a dividend actually is calculated for a particular policy.
I’ll provide an example of where some of my confusion is coming from. I write most of my business through Penn Mutual so I will use that as an example. A paid up at 100 whole life policy on a 35 year old male, preferred non-tobacco, begins accumulating cash value in year 3. However, using a current-scale illustration, the first dividend in not paid until year 6 (this is using just the base premium, no additional PUA’s). So, obviously this isn’t a simple calculation of dividend percentage (6.35% for 2013) x Cash Value = Dividend. I’m trying to figure out where that 6.35% actually comes into play. When using a universal life policy of any kind, it is that simple: CV + net premiums +/- performance - internal costs = Next Year's CV. From what I've read, it's not that easy to dissect the application of a whole life dividend because it varies by policy.
I’ll provide an example of where some of my confusion is coming from. I write most of my business through Penn Mutual so I will use that as an example. A paid up at 100 whole life policy on a 35 year old male, preferred non-tobacco, begins accumulating cash value in year 3. However, using a current-scale illustration, the first dividend in not paid until year 6 (this is using just the base premium, no additional PUA’s). So, obviously this isn’t a simple calculation of dividend percentage (6.35% for 2013) x Cash Value = Dividend. I’m trying to figure out where that 6.35% actually comes into play. When using a universal life policy of any kind, it is that simple: CV + net premiums +/- performance - internal costs = Next Year's CV. From what I've read, it's not that easy to dissect the application of a whole life dividend because it varies by policy.
