Northwestern Mutual's Commitment to Policyowners
Northwestern Mutual's number one obligation is to pay our policyowners' claims whenever they come due, whether it be tomorrow or decades into the future. Currently Northwestern Mutual pays a death claim, on average, every half hour, 24 hours a day, seven days a week, all without regard to the economic environment, the performance of investment markets, the political climate, or catastrophic events. To achieve this Northwestern Mutual operates by these important principles:
- Use conservative assumptions when pricing our life insurance policies
- Invest carefully with a focus on lower risk, high quality, fixed income instruments
- Manage the company diligently by keeping expenses low and striving to accurately estimate future claims through careful underwriting
When Northwestern Mutual's actual expense, claims (mortality) and investment performance experience is better than those assumptions used when pricing our life insurance policies, a dividend may be payable1. This dividend helps ensure that policyowners receive their coverage at the lowest possible cost. It is the combination of Northwestern Mutual's strength with respect to our claims paying ability along with our industry leading dividends that sets us apart from other companies.
About Your Policy
Your policy combines whole life and term insurance, which gives you a lower premium than a policy of all whole life insurance. The whole life insurance coverage is intended to last for your entire life and the premium is guaranteed to remain the same over time. Term insurance is life insurance coverage that is intended to be temporary, with a guaranteed premium for only one year at a time. As you get older, the cost of term insurance increases.
How the Policy Works
For the policy to provide the full death benefit no matter how long you live, the whole life insurance portion must eventually grow large enough to replace the term insurance portion. Your policy was designed so that this gradual replacement of the term insurance portion happens by using annual dividends or additional premium payments to purchase more whole life insurance.
What Causes the Premium to Increase?
The term insurance portion of the policy is not being replaced with whole life insurance quickly enough to provide a lifetime death benefit. For most policies, this is the result of lower dividend payments.
Why Did the Dividend Decrease?
The difference between the conservative assumptions used when pricing our life insurance policies and the company's actual current experience has narrowed. This is primarily the result of interest rates on fixed income investments declining over time, causing the yield on Northwestern Mutual's investment portfolio to move closer to the original interest assumptions used when pricing our life insurance policies. The following graphic illustrates the decline in interest rates beginning in the 1980s.
Source: Bloomberg: 30 year Treasury Bonds (1929 – Present), Moody's Corporate Bond Average (1984 – Present); The Economic Report of the President 2017: Moody's Aaa Corporate Bonds (1939 – 1983)
While the current low rate environment is putting downward pressure on the company's investment performance, it is important to note that the company's diligent management of expenses and careful underwriting practices continue to generate savings above and beyond the conservative assumptions used when pricing our life insurance policies. These savings offset some of the impact of the low rate environment. Today, this accounts for about 75% of the amount of dividends paid. The following graphic illustrates how much of the company's dividend payout is generated from diligent management of expenses and careful underwriting practices (blue) versus how much is generated by the investment yield (gold) above and beyond the conservative assumptions used when pricing our life insurance policies.
2018 is expected amount
We understand the challenge of having policy dividends pay a smaller portion of your policy's premium and remain committed to managing the company carefully to both pay the highest dividend possible while maintaining unquestionable claims paying ability. Northwestern Mutual whole life insurance policies will continue to provide a guaranteed death benefit and cash value that is guaranteed to grow.