Northwestern Mutual Whole Life Insurance Rates - In 2013, we published our first historical lifetime dividend analysis. We were the first site to go beyond just a basic dividend data table because we knew that a typical table was not enough to make any meaningful observation of dividend data.
This year, we are updating the analysis process to introduce more advanced and accurate data reports, as well as some predictive methods that provide more meaningful observations about upcoming dividend announcements.
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We continue to collect publicly reported data on lifetime dividend interest rates and run it through a series of calculations to make actionable statements about the performance of various insurance companies. In the past, the analysis focused on the average movement of the dividend yield over a 10-year period and the standard deviation of each company's dividend yield.
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We reduce the average movement of the dividend interest rate over the entire 10-year period because I have always felt that this is a bad calculation. It was simply the average change from the first observable year to the last observable year. A rough and proper measurement, but one that lacked any precision that would allow further conclusions to be drawn from the data.
We replaced this average movement with the average year-over-year movement of the dividend yield (ie, linear regression or progression) in the data. This more meaningful measure of data allows us to make some predictions about what might happen to the dividend yield for any given insurance company (more on that later).
The standard deviation analysis is the same. We also use the same data set used to calculate the new year-over-year average change to calculate the standard deviation of the dividend yield for a particular company.
The dividend interest rate tells us the input variable to calculate the dividend at a specific insurance company. This specific variable deals with the part of the dividend made up of the investment income generated by the life insurer. This data point is non-standardized, so we cannot compare one life insurance company's dividend yield with another's dividend yield and make any meaningful observations.
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In other words, we cannot compare the 6.5% dividend rate of insurance company A with the 5.85% dividend rate of life insurance company B. A is higher, so it is better than insurance company B," the truth is , we don't know if it's entirely true.
We can meaningfully state that if the dividend rate of insurance company A is 6.5% this year and 6.1% next year, the dividend rate of insurance company A has decreased. So we can use the dividend yield rate for a particular insurance company and track its year-over-year change to get a relative idea of how that dividend component has changed over time.
The investment yield component of the dividend also has the biggest impact on the dividend payable for most resident companies - so checking the dividend interest rate can prove important.
As I said above, the new calculation of the average movement of the dividend interest rate is an annual average rather than a simple beginning of the time period to the end of the change in the average rate of the time period. This tells us what the average change in the dividend yield has been for each year over the last 10 years.
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In the table, the companies are ranked from the lowest average turnover to the highest. While the table shows no average change in New York Life, there has been an extremely small change, which is rounded to zero to three decimal places.
Interestingly, four companies, MetLife, Northwestern Mutual, Ohio National and Guardian, cluster together. MassMutual sits in the middle alone. New York Life and Penn Mutual come pretty close with very little movement in the dividend yield over the past 10 years.
It is important to note that this data represents the average change as a percentage change. This is not an average decimal change in the interest rate of the dividend. In other words, it doesn't tell us that the average change for Guardian was 0.021 in its dividend yield, but that the rate of change averaged 0.021 or 2.1% year over year.
Standard deviation analysis proves useful as a way to estimate the overall volatility of the dividend yield. Higher values show us more movement in the dividend rate over a 10-year period; lower rates show us less movement.
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There is an interesting wrinkle in the numbers here that needs to be highlighted. Despite New York Life's lower average dividend yield change (coming to almost zero), Penn Mutual shows much less dividend rate volatility over the same time period. This means that New York Life's dividend moved around a lot, but ended up at about the same rate as it was at the end of the 10-year period.
Penn Mutual, on the other hand, moved very rarely, but then moved to a new (lower) point before the end of the 10-year period.
Again, we see a grouping of companies by deviation, with MassMutual, Ohio National and MetLife, all somewhat close in the 0.30 percent range, while Northwestern Mutual and Guardian fall into the 0.40 range.
This data informs about the decimal change in the interest rate of the dividend. So, for example, a standard deviation of 0.1425 for New York Life means that it changed about 14 basis points in the dividend yield over a 10-year period.
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We can use the data we have to predict future dividend movements. These predictions are not precisely perfected models based on the range of data we have access to. Instead, they provide us with a range of possible dividend changes that we can consider "normal" given the dividend performance at a particular company over the past 10 years.
We calculate this using the average year-over-year change in the dividend yield and the standard deviation to arrive at the new floor rate.
This data shows us the bottom line to which each company can cut its dividend yield and stay within a range that we believe is a continuation of the trend of the last 10 years.
So, for example, if Guardian announces this year that the dividend yield for 2021 will be 5.45%, it is in that range (5.41% is the limit of that range), so we would not immediately suspect more severe downward pressure on Guardian. . on its dividend interest rate. However, if Guardian were to announce a new dividend rate of 5.35%, it is not out of the realm of possibility and we would suspect that Guardian is facing increasing pressure to cut its dividend rate.
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Notices about this information, especially about New York Life and Penn Mutual. Considering that the current economic climate facing insurers presents a challenge to a sustainable dividend rate, and since these two companies performed well above average, one of the companies announcing a rate below these numbers does not necessarily mean that one of the companies has serious problems. . The fact that conditions worsened for any of them could be literal. However, we would prefer notification to that extent; that's always good news.
Another interpretation of this data is the relative distance between these numbers and the current dividend yield. The higher the number, the greater the volatility of the dividend yield over the past 10 years. Taking Penn Mutual and Guardian as examples of opposite ends of the data set.
If Penn Mutual announces a rate more than four basis points below its current dividend yield, it will fall outside its 10-year trend range. Guardian, on the other hand, can cut its dividend rate by 24 basis points and stay within the normal range of the last 10 years.
Every year we publish a new dividend analysis, commenting on the fact that dividends and dividend rates don't always tell us the whole story as it relates to reasons to buy whole life insurance. This fact remains unchanged. While this information is useful for some applications of a life insurance purchase decision—especially for anyone looking for whole life insurance primarily for its money-making features, it is not always the most critical factor.
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Additionally, if you own a whole life insurance policy from a company that behaves at the lower end of this analysis, that doesn't necessarily mean you should immediately take out that policy. There are several reasons why this might not make sense, but I'll leave that discussion for another day. Simple and highly flexible, Life Plus enables advisors to tailor life insurance solutions to meet a wide range of individual financial planning needs.
MILWAUKEE , Sept. 4, 2019 /PRwire/ -- Northwestern Mutual announced the launch of its new Life Plus line, a simplified and highly customizable life insurance offering. The company's new life product is based on its more than 160 years of insurance experience
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