What to Consider When Dealing With Interest and Dividends

When you are working with interest and dividends, it is important to remember, to look if the company is using realistic numbers and facts, while also considering the company’s history.

Basic questions for dividends and interest rates with their non-guaranteed factors:

Are any of the underlying experiences factors significantly different from current experience? If so, examine which ones and how do they differ?

If the policy is participating, is there a substantial probability that the current illustration dividend scale cannot be continued, if current experience holds?

If the policy is non-participating, is there a substantial probability that current illustrations cannot be supported by currently anticipated experience?

Is the policy of the traditional participating variety, or does it contain non-guaranteed pricing elements using a means other than dividends?

If the policy is not participating, what are the non-guaranteed elements involved? There are usually non-guaranteed interest crediting rates, mortality charges, loading, etc.

If the policy is participating, does the company state that the contribution principle (i.e. aggregate divisible surplus should be distributed in the same proportion, as the policies are considered to have contributed to the company’s divisible surplus) is being followed on the illustrative dividend scale? If it is not, how does it differ?

If the policy is non-participating, what is the company’s practice with respect to determination and re-determination of non-guaranteed pricing elements, with particular reference to (a) the degree of discretion reserved by the company and (b) whether any of the elements are guaranteed to follow an outside index?

Tony Steuer is an author and advocate for financial preparedness. Tony Steuer, CLU, LA, CPFFE, helps people make sense of the financial world in a way that’s easy for them to understand. His books including, “GET READY!,” “Insurance Made Easy,” and “Questions and Answers on Life Insurance,” have won numerous awards. Tony is the founder of the GET READY! Initiative which includes the GET READY! financial organization system, the GET READY! Financial Preparedness Club, GET READY! Podcast, and the GET READY! Financial Principles, a best practices playbook for the financial services industry. Tony served as long-term member of the California Department of Insurance Curriculum Board. Tony is regularly featured in the media including the New York Times, the Washington Post, Fast Company, and other media. He has also appeared as a guest on television shows, such as ABC’s “Seven on Your Side.” Visit https://tonysteuer.com/ to join the GET READY! Financial Preparedness Club and access free resources.

Leave a Comment