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2022 Dividends & Interest Rates

Trust Officer providing insurance overview to trustee

Written by: G. Tate Groome, CFP®, CLU®, AEP®

What’s happening with Whole Life Dividend Rates in 2022?

Whole Life (WL) Dividend Rates: Policyholders are grateful 2022 dividend interest rates for the major mutual carriers held steady to 2021 rates. Yet, policyholders are still seeing the effects of lost compound interest from past dividend declines. Out-of-pocket premiums continue to re-appear or be due longer than anticipated.

  • Brighthouse: decreased from 4.70% in 2020 to 4.35% in 2021, and now to 4.00% in 2022.
  • New England: decreased from 4.65% in 2020 to 4.30% in 2021, and now to 3.80% in 2022.
  • John Hancock: policies issued prior to February 1st, 2000 will experience a decline from 4.00%(2020) to 3.25% (2021) to now 2.50% (2022)
  • Prudential: stopped disclosing the dividend interest rate many years ago. Prudential announced a continuation of the 2021 dividend scale for 2022, but their press release expected payment of $1.3 billion in 2022 was $100 million less than their expected payment in 2021 for the same dividend scale. So, some policies may be impacted.
  • Penn Mutual: maintained its 2021 dividend rate of 5.75%

The most concerning decrease is John Hancock’s decrease to 2.50%. Many of these older policies (issued prior to 2000) are heavily blended with term insurance. Although written with a financially strong carrier, our LT3D team has all of these policies flagged for additional review in 2022.

LT3D TIP FOR TRUSTEES: If you are the Trustee of a John Hancock Whole Life/Term Blend policy issued prior to 2000; take this year to request current in-force illustrations at the new 2.5% dividend rate to better understand when (not if) decreases in death benefit and/or increases in premium will take place.

For Whole Life policy holders, catching up to original projections is becoming less of a reality, even if dividend rates increase in the future. With 81% to 94% of carrier assets invested in interest rate driven investments such as bonds, mortgages and contract loans (so that carriers receive maximum credit to satisfy capital requirements), the short-term outlook for general account policy types such as Whole Life and current assumption Universal Life isn’t favorable.

As we move into 2022, one may be asking: Will Rising Interest Rates Benefit Policies? The Federal Reserve has indicated an expectation to raise interest rates in 2022. A natural by-product is to wonder if those actions will result in interest rates on life insurance policies increasing. In short, the answer is maybe for a new policy being purchased, but probably not for a while. Most carriers credit interest based on a portfolio method – old bonds and new bonds mixed together. As older bonds mature, the carrier is replacing them with bonds at current market rates. Those market rates have been much lower than the maturing bond for many years. This creates a lag effect in relation to the movement of new money rates. As new money rates decline, the portfolio yield will lag several years behind the decline. As new money rates rise, the portfolio yield will lag a few years behind on the uptick as well. So, don’t expect inforce policies to materially benefit from rising interest rates or rising dividend rates for several years.

LT3D TIP FOR TRUSTEES: Policyholder annual statements do not adequately reflect the impact on policy performance of dividend reductions over time. It is time to accept reality with downward pressure continuing. When monitored diligently, whole life offers a myriad of options to continue to meet client goals. For older insureds with whole life/term blends, proceed with extreme caution. 1035 exchange options are becoming more and more limited. If you are considering an alternative, the time to act is now.

Are you ready to connect with our life insurance monitoring team? Let’s schedule a conference to discuss your needs: