Dividends provide
a true "net cost"

The guaranteed policy values, death benefits, and premiums for Northwestern Mutual's whole life insurance policies are based on conservative assumptions with regard to investment returns, mortality experience, and expenses. However, the company fully expects its actual performance will be better than those conservative assumptions over the long run. Annual dividends are paid when Northwestern Mutual's actual experience is better than what was assumed when setting the policy's guaranteed values. While dividends are subject to change and are not guaranteed, Northwestern Mutual has paid them every year since 1872. The ability to pay dividends is a result of efficient operations, careful risk selection, and successful investment management. Through dividends, Northwestern Mutual's goal is to provide policyowners with world-class insurance protection at the lowest possible cost.


Annual dividends

Policyowners can use dividends to increase policy values or offset premiums, or they can even take them in cash. The guaranteed accumulated value used to determine a policy's dividend will vary depending upon how the policy's dividends were used in prior years. When the annual dividend is used to increase policy values, it becomes part of the guaranteed accumulated value at the beginning of the following policy year and is used to determine future dividends. When a dividend is taken in cash or used to pay premiums, it does not increase the guaranteed accumulated value.



Real dividend example

Once the company evaluates its results for the year, it then calculates the dividend payable on each eligible policy. Here's a snapshot of how this second step works using actual values from a policy issued in 1991.

  • Guaranteed Accumulated Value (beginning of year 27) $72,629
  • Gross Annual Premium + 1,579
  • Mortality & Expense Charge
    (based on actual company experience)
    - 396
  • Balance (policy value @ beginning of year) $73,812
  • Interest Credit
    (based on actual company experience)
    + 3,691*
  • Accumulated Value (end of year) $77,503
  • Guaranteed Accumulated Value (end of current year) - 75,583
  • Annual Dividend (for current policy year) $1,920
* The interest credit ($3,691) is equal to the 2019 Dividend Interest Rate for unborrowed funds for most whole life policies with direct recognition (5.00%) multiplied by the policy value at the beginning of the policy year after mortality & expense charges are taken out ($73,812).


How Northwestern Mutual calculates a dividend

Determining a whole life policy's annual dividend starts with the guaranteed accumulated value of the policy at the beginning of the year. The broader industry calls this the guaranteed cash value. To this number Northwestern Mutual adds the gross annual premium and subtracts a mortality and expense charge, which is based on actual company results. The balance is credited with the current dividend interest rate (5.0% for most policies in 2019) to determine the end-of-year accumulated value. The dividend is the difference between the accumulated value (reflecting actual company experience) and the guaranteed accumulated value at the end of the year. The annual dividend is paid on the policy anniversary. Dividends and the other calculations shown in the example are based on the dividend scale interest rate for that particular dividend scale year.