Dividend-paying whole-life insurance is starting to shine amid abysmal rates for fixed-income investments.
Massachusetts Mutual Life Insurance Co. last week said that its board approved a $1.39 billion dividend payout for next year, up more than 4% compared with the payment announced last year. Although the total dollar amount is up, the mutual insurer's policyholders will get a dividend interest rate of 7%, unchanged from the previous year.
That rate is beating a number of fixed-income investments these days. The 10-year Treasury, for example, is yielding about 1.7%.
A combination of factors is fueling MassMutual's record-level payouts.
Sales of life insurance year-to-date through the third quarter reached $200 million, reflecting a 27% increase from the comparable period in 2011, said John Chandler, chief marketing officer at MassMutual.
Revenue from other affiliates, such as Baring Asset Management Ltd., also has contributed to dividend payouts, he said.
However, it also helps that the insurer is an investor in long-dated bonds.
“A lot of people compare this [7%] rate to short-term rates, but you can't do that,” Mr. Chandler said. “We're talking about going back decades and buying long-term bonds, which gives us a strong performance record.”
Some buyers are turning to whole-life insurance as a safe harbor, driving interest in 10- and 20-pay products, policies that are paid off within 10 and 20 years, respectively, Mr. Chandler said.
“It's a place to invest in your primary benefit and to build up cash value,” he said. “It also gives buyers flexibility to take policy loans.”
Indeed, some clients are taking advantage of that flexibility and using their cash value to pay children's college tuition bills or for supplemental income in retirement, Mr. Chandler said.
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