Whole Life Dividend Announcements May Be Disappointing

This is the season for whole life insurance companies (mutual companies in particular) to make dividend announcements for 2023. With the significant rise in interest rates we've seen this year, you'd think that would have a positive impact on returns for life insurance companies. Right?  We all know that the vast majority of their reserves are invested in interest-bearing investments, mostly investment-grade bonds (just over 50% of all general account assets). So it would stand to reason that life insurance companies are now able to increase their overall investment yields as a result of higher rates. And that assumption is true, higher rates will lead to improved results in investment income. But it won't happen immediately. Remember, life insurance company general accounts are massive and they've all been forced to invest in bonds with very low yields for over a decade. Of course, they're now buying assets with much higher yields but the lower-yielding assets have a dilutive effect. Meaning it will take some time for the new asset purchases to have a positive effect on their investment yields.  That's a long-winded way of pointing out that dividends are not going up in the short term. The trend is in place for dividends to increase in the years to come but don't be disappointed if you don't see your policy increasing dividends this year. So far, it's not happening and we don't expect to see any significant changes announced in the coming weeks.  ____________________________________ If you've been thinking about purchasing a whole life policy or any other type of life insurance, we'd love to talk to you. Every day we help people from all over the country find the right policy whether they want to use it as a source of tax-free income, a personal bank to finance future purchases, as part of an estate plan, or to plan for future income needs of their family. We have the experience to help you navigate your options and to help implement the right policy for you. Please click here to get in touch with us and to set up a time to discuss your particular situation.