Does the policy design impact the dividend?
A. Yes, in two ways. First, since dividends are a return of excess premium, the higher the premium for a given class of policies, the higher the dividend. Secondly, if the policy design features high guaranteed cash values, there is less margin in the premium, which leads to a relatively lower dividend. As an example, Covenant II features relatively low premiums and high guaranteed cash values. Therefore, dividends paid on Covenant II policies may be lower than some competitor products. But even if the dividends are lower, the combination of low premiums and high guaranteed cash values may still provide better value.
A. Yes, in two ways. First, the higher the premium for a given class of policies, typically, the higher the dividend. Secondly, if the policy design features high guaranteed cash values, there is less margin in the premium, which leads to a relatively lower dividend. As an example, Covenant II features relatively low premiums and high guaranteed cash values. Therefore, dividends paid on Covenant II policies may be lower than some competitor products. But even if the dividends are lower, the combination of low premiums and high guaranteed cash values may still provide better value.
