THE NATURE OF DIVIDENDS
DIVIDEND. A refund of excess premium paid to the owner of an individual participating life insurance policy. Such a dividend is paid out of an insurer's divisible surplus. Also called a policy dividend or policy owner dividend.
DIVISIBLE SURPLUS. The portion of an insurer's surplus, set aside annually from current earnings, and earmarked for distribution to owners of participating policies.
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Following each year's operations, the company determines the amount that should be distributed to policyowners after taking into account expenses, claims, investment returns and reserves for future life insurance benefits. This amount is known as "divisible surplus" and it is distributed equitably among classes of policies in the form of dividends. Dividends are payable at the end of each policy anniversary.
If the company's experience is favorable, meaning that the actual is better than assumed rates, then there is a 'surplus' or an 'excess'. Specifically, a favorable experience is described as having:
- Lower overhead expenses -- due to judicious use of resources, as well as cost reduction strategies
- Lower claims experience -- due to sound underwriting practice
- Higher investment returns -- due to factors like economic & political climate, as well sound investment decisions
Dividends depend on the company's actual experience versus assumed factors. None of these can be predicted with unerring accuracy since our business is subject to the effects of external factors. In any given year, the amount of dividends credited may be higher or lower than those given in previous years. In extreme situations, no dividend may be given at all. This explains why computer-generated proposals contain the term 'dividend illustrations', and they clearly indicate the non-guarantee clause.
Why are dividends not guaranteed?
There is no way to know in advance what level of dividends, if any, will actually be paid on a participating policy. Neither the payment nor the amount of dividends can be guaranteed, since these depend on the company's actual investment, expense, and mortality experience. None of these can be predicted with unerring accuracy since there are external factors that the company is not in full control of.
Dividend Scale
Dividend Scale or Dividend Factor refers to the amount of any dividend that is credited to a participating plan at the end of each policy anniversary. This may vary depending on the type of plan, face amount and insured's age.It is the interest rate by which the company accumulates the dividends earned by the participating plans. To illustrate, if the policy earns a dividend of 1,000 at the end of Year 1, then this will be accumulated at 9% interest, resulting to 1,090 at the end of Year 2.
How is the interest rate determined?
It represents the actual rate being earned on an insurer's present investments based on prevailing market conditions.
PHILAMLIFE UPDATE ON DIVIDENDS
Effective May 1, 2003, we will be reducing the dividend scale, as well as the interest rate for dividend accumulation from the previous 11%-15% to 9% for all new participating policies.
Effective August 1, 2003, we will be implementing the same dividend changes above to all in-force participating policies.
In view of the drastic decline in interest rates in the last few years, Philamlife is aligning the dividend values on all participating policies to reflect current and projected market conditions. As a life insurance company, our primary commitment is to fulfill our contractual obligation to provide protection to our policyowners. Because of decreasing market interest rates, the rate at which Philamlife can accumulate dividends has consequently gone down. To reflect existing and projected market conditions, we were constrained to lower the dividends being credited to the policies since we foresee the unpredictable investment climate and depressed market interest rates as continuing.
What is Philamlife's experience in the past years?
Philamlife has been able to pay its guaranteed benefits on all of its policies. It has also credited dividends and interest rate as scheduled, when Philamlife was in a good position to do so, with the best interest of its clients in mind. Philamlife has also repriced products, changed product features including dividend scales on new products and reduced interest credits such as the reduction to 11% when it was necessary to do so.
Definitely NO. Through the years, Philamlife has built a reputation of being one of the most stable and financially strong companies in the Philippines. Philamlife still ranks first in the life insurance industry. As the undisputed market leader in the life insurance industry, we are committed to ensure our client's long term financial security.
Philamlife remains to be financially strong and one of the most stable companies in the Philippines. But any insurance company, or any business undertaking for that matter, which refuses to recognize market realities or does not take the appropriate action to address such realities will likely lose. Philamlife stands by its commitment to its policyholders and will take the necessary action to ensure that it remains financially viable to honor this commitment.
How does this change affect my policy?
Below is an online form that you can use to submit specific questions regarding the effect of the dividend change to your policy. Fill in all of the fields below and click on the submit button once.You will recieve our reply to your inquiry through the email address that you will indicate below.
Copyright 2001. American International Group, Inc.
All rights reserved. Updated 11/13/2005
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