Dividends with Insurance Companies and how they are calculated

Let’s Talk About the Dividend

Before we talk strategy… let’s define the term.

What is a dividend?

In a mutually owned life insurance company, a dividend is a return of excess profits to the policyholder. Not shareholders on Wall Street. Not private equity. You.

Because in a mutual company, you’re not just a customer.

You’re a partner.

Now let’s address the obvious:

Dividends are not guaranteed.

But here’s what is worth paying attention to — every mutual company we partner with has paid a dividend for well over 100 consecutive years. Through the Great Depression. Through World Wars. Through pandemics. Through inflation cycles. Through the gold standard coming and going.

Through all of it.

Is that a guarantee for tomorrow?

No.

But is it comforting to know your financial partner has been profitable through literally every modern economic storm?

Absolutely.

How Are Dividends Calculated?

At a high level, dividends come from three primary areas:

1. Mortality experience (fewer death claims than expected)
   
   
2. Expense management (operating more efficiently than projected)
   
   
3. Investment performance (earning more than the conservative assumptions built into the policy)
   

Mutual companies price policies conservatively. When results are better than projected, the excess gets returned to policyholders in the form of a dividend.

That dividend can do several jobs, here are a few:

• Reduce premium
• Accumulate at interest
• Be taken in cash
• Or — the most optimal job for banking — buy Paid-Up Additions (PUAs)

Why We Use Dividends to Buy PUAs

When the goal is banking, control, and long-term compounding, we typically elect to use dividends to purchase PUAs.

Why?

Because PUAs:

• Increase permanent death benefit
• Increase high early cash value
• Increase the total capital base participating in future dividends

In simple terms, PUAs add more fuel to the engine.

More fuel → larger cash value base → potential for larger total dividends over time. It’s not about chasing yield. It’s about increasing ownership.

But Let’s Talk About Something Most Agents Don’t

The base premium — the actual cost of whole life — plays a major role in long-term dividend performance.

Research and industry analysis show that per dollar, base premium can generate significantly more dividend in later years than a dollar of PUA. Some estimates suggest up to 10x more per dollar in certain policy designs.

Why?

Because base premium carries more of the contractual guarantees and participates differently in the dividend formula. It’s structured for long-term stability and profit sharing. PUAs, on the other hand, are designed for efficiency — high early cash value, flexibility, and acceleration.

Both matter.

This is why policy design is so important.

• More base = stronger long-term dividend potential
• More PUA = stronger early liquidity and flexibility
• Term riders (when used) help increase early capacity and allow for higher PUA funding without violating IRS limits

Each component affects the dividend calculation and overall performance.

This isn’t random. It’s engineering.

The Bigger Point

The dividend isn’t magic. It’s not a stock return. It’s not speculation. It’s not just your money being returned to you as Daddy Dave claims. It’s a byproduct of disciplined underwriting, conservative investing, and mutual ownership.

And when you hold one of these contracts, you are the #1 stakeholder.

You’re not betting on quarterly earnings.

You’re partnering with a company that has survived:

• The Great Depression
• World Wars
• The 1970s inflation crisis
• 2008 financial collapse
• Global pandemics

And never missed paying a dividend. Again — not guaranteed. But proven over time. A long time.

When we design a policy for banking, we aren’t just chasing the highest dividend today.

We’re building a long-term partnership.

A structure that balances:

• Liquidity
• Control
• Guarantees
• Growth
• Optionality

And yes — dividend potential.

Because over decades, dividends buying PUAs buying more death benefit buying more cash value creates a compounding ownership effect that most people never experience. The dividend is simply evidence that your partner is profitable. The strategy is what you do with it.

And when used wisely, it becomes one more tool helping you move from policyholder…

To banker.