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Northwestern Mutual announces an expected record dividend payout of $8.2B.

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NORTHWESTERN MUTUAL

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 * Life Insurance


HOW DO LIFE INSURANCE DIVIDENDS WORK?

--------------------------------------------------------------------------------

 * Sean McGinn
 * Oct 01, 2024


Dividends can be a great benefit of life insurance.
share


KEY TAKEAWAYS:

 * Life insurance dividends may be paid when a company performs better than it
   assumed when setting policy guarantees.

 * Dividends can be used to grow your life insurance, pay premiums or taken as
   cash.

 * Northwestern Mutual has paid a dividend every year since 1872.

If you’re thinking about buying whole life insurance (or if you already have a
policy), you may have heard the word dividends. They sound like a good
thing—after all, dividends are extra money that’s paid out to you. But what are
they really and how do life insurance dividends work?  


WHEN DO LIFE INSURANCE COMPANIES PAY DIVIDENDS?

Life insurance companies make certain financial assumptions when setting the
guarantees underlying the products they sell. For instance, they make an
assumption about how many claims they will pay each year, called mortality. They
make an assumption about the amount they will earn on the money they invest. And
they make an assumption about expenses, i.e., how much it will cost to run the
company. 

When a company finishes the year better than those assumptions, it can choose to
pay some or all of that money back to shareholders and policyowners. 

Some life insurance companies don’t have shareholders; many of those companies
are called mutual companies (Northwestern Mutual happens to be one of those). So
at mutual companies, surplus money is paid solely to policyowners in the form of
a dividend. At Northwestern Mutual, we have paid a dividend every year since
1872 (more than $150 billion over that timespan. We just announced that in 2025
we expect to pay $8.2 billion worth of dividends. For life insurance we expect
that to be more than three times as much as our nearest competitor. 


ARE DIVIDENDS PAID ON WHOLE LIFE INSURANCE POLICIES? 

This can vary from company to company. But typically a whole life insurance
policy is eligible for dividends if a life insurance company pays them. This can
be a great benefit over time as you may be able to use your dividend to purchase
additional paid-up whole life insurance. Doing so can help you increase your
death benefit and cash value more quickly than the guarantees built into the
policy. And over time this can have a compounding effect as your additional
insurance will be eligible for additional future dividends. 


ARE DIVIDENDS PAID ON TERM LIFE INSURANCE POLICIES? 

Again, this can vary from company to company. But some term life insurance
policies are eligible for dividends. If dividends are paid for term life
insurance, they could be taken as cash or used to reduce your premium. 


EVALUATING LIFE INSURANCE DIVIDENDS 


HOW IS A LIFE INSURANCE DIVIDEND CALCULATED? 

While different types of permanent life insurance policies work differently, in
general, when you buy permanent life insurance, you pay a yearly premium for
your policy. Each year, that premium is added to your policy and becomes cash
value—money that you can access for any reason during your lifetime. After the
premium is added to your cash value, expenses to pay claims and operate the
company are subtracted based on the guaranteed assumptions. Then, interest is
credited also based on a guaranteed rate. If the company’s actual experience is
better than the guaranteed assumptions for expenses, claims (mortality), and
investments, a dividend is paid. You can learn more about Northwestern Mutual’s
dividend here.  


COMPARING DIVIDENDS FROM DIFFERENT WHOLE LIFE INSURANCE POLICIES 

Make sure you ask about all the components of the dividend (mortality, expenses
and interest rate). Just because one company’s dividend interest rate is higher
than another’s doesn’t mean the actual dividend amount that you get will be
higher. For example, it’s possible that a company doesn’t perform as well from a
claims or expenses standpoint. If that’s the case, they could have a higher
interest rate than another company but end up paying a lower dividend. That's
why it’s so important to see the whole picture before you make a decision on
which policy to buy. 


DOES EVERY INSURANCE COMPANY PAY LIFE INSURANCE DIVIDENDS? 

Some companies do, some do not. And even among companies that do pay regular
dividends, it’s important to look at the company’s history of paying dividends
because, after all, dividends aren’t guaranteed. This can make a big difference
in the value of a permanent life insurance policy over time. 

VIDEO: HOW DO LIFE INSURANCE DIVIDENDS WORK?

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ARE LIFE INSURANCE DIVIDENDS TAXED? 

Generally, life insurance dividends are considered a return of premium. Whether
a dividend is taxed depends on how it is used and specific facts about the
policy. 

HAVE A QUESTION OR A TOPIC TO DISCUSS WITH YOUR ADVISOR?

Reach out


LIFE INSURANCE DIVIDEND OPTIONS 

When you get a dividend, you have several options. These include: 


TAKING YOUR DIVIDENDS AS CASH 

You could choose to take your dividend as cash. With this election, your
insurance company will send you a check any time it pays a dividend. 


PAYING YOUR PREMIUM WITH YOUR LIFE INSURANCE DIVIDEND 

This can help to reduce what you’ll owe on your policy each year. And at some
point, it’s not unusual for policies at Northwestern Mutual to grow to a point
where the dividend can cover the entire cost of the life insurance for the
year.  


ACCUMULATE DIVIDENDS INSIDE THE POLICY 

With certain types of permanent life insurance policies, you can accumulate
dividends with the company inside the policy (thereby increasing the cash value)
with interest credited at a rate set by the company. These policies have a
minimum crediting rate, but the rate can be higher than the minimum. 


PURCHASING ADDITIONAL COVERAGE 

Your final option is to use your dividends to buy additional paid-up life
insurance. Using dividends in this way can allow the death benefit & cash value
of your policy to grow more quickly over time. That’s particularly beneficial
because this growth compounds and is typically tax-deferred.  


QUIZ: HOW MUCH DO YOU KNOW ABOUT LIFE INSURANCE?


Back
1/6
The only benefit that life insurance offers is a payout to loved ones if the
person who is insured dies.
A. TrueB. False
Next
Sean McGinn Assistant Director of Risk Product Positioning

From gathering competitive information and providing analysis to fine-tuning
educational resources, Sean helps internal and external audiences understand the
unique competitive advantages of Northwestern Mutual’s insurance products. He
has been with the company for 30 years and holds an undergraduate degree in
mathematics from the University of Wisconsin-Whitewater and an MBA from the
Keller Graduate School of Management. 

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guide


LIFE INSURANCE GUIDE

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HOW MUCH DO YOU KNOW ABOUT LIFE INSURANCE?

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article


IS WHOLE LIFE INSURANCE A GOOD INVESTMENT?

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DO YOU KNOW WHAT MAKES A GOOD FINANCIAL PLAN?

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RETIREMENT PLANNING: HOW MUCH DO YOU NEED IN SAVINGS?

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HOW WHOLE LIFE INSURANCE CAN HELP YOU WITH MULTIPLE FINANCIAL GOALS

Get Started




FIND WHAT YOU'RE LOOKING FOR AT NORTHWESTERN MUTUAL

NORTHWESTERN MUTUAL GENERAL DISCLAIMER

Northwestern Mutual is the marketing name for The Northwestern Mutual Life
Insurance Company and its subsidiaries. Life and disability insurance,
annuities, and life insurance with longterm care benefits are issued by The
Northwestern Mutual Life Insurance Company, Milwaukee, WI (NM). Longterm care
insurance is issued by Northwestern Long Term Care Insurance Company, Milwaukee,
WI, (NLTC) a subsidiary of NM. Investment brokerage services are offered through
Northwestern Mutual Investment Services, LLC (NMIS) a subsidiary of NM,
brokerdealer, registered investment advisor, and member FINRA and SIPC.
Investment advisory and trust services are offered through Northwestern Mutual
Wealth Management Company (NMWMC), Milwaukee, WI, a subsidiary of NM and a
federal savings bank. Products and services referenced are offered and sold only
by appropriately appointed and licensed entities and financial advisors and
professionals. Not all products and services are available in all states. Not
all Northwestern Mutual representatives are advisors. Only those representatives
with Advisor in their title or who otherwise disclose their status as an advisor
of NMWMC are credentialed as NMWMC representatives to provide investment
advisory services.

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FOOTER COPYRIGHT

*Based on Northwestern Mutual internal data, not applicable exclusively to
disability insurance products.

Copyright © 2024 The Northwestern Mutual Life Insurance Company, Milwaukee, WI.
All Rights Reserved. Northwestern Mutual is the marketing name for The
Northwestern Mutual Life Insurance Company and its subsidiaries.





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