Glossary

Dividend scale

The formula an insurer uses each year to set payouts on participating policies, based on its investment, mortality and expense experience.

Also called: dividend schedule, dividend formula

A dividend scale is the set of formulas and assumptions a life insurer uses to calculate the dividends it pays on participating policies for a given year. The board of directors approves the scale, usually annually, and it decides how much of the company's divisible surplus goes to each policy based on the policy's type, issue age, size and duration.

The scale blends three main sources of gain: investment earnings above the rate guaranteed in the policy, mortality better than assumed, and expenses lower than assumed. Many mutual companies announce a headline "dividend interest rate" with their total payout for the coming year. That rate is one input to the scale, not the return a policy earns. Hypothetical example: if an insurer's dividend interest rate falls from 6% to 5.5%, dividends on policies sold years ago drop, and an illustration run on the old scale will overstate future cash values.

Illustrations must show values on the current scale alongside guaranteed values, and the NAIC's illustration rules bar projecting a scale more favorable than the current one. Over long periods, dividend scales have followed interest rates, declining broadly through the low-rate years after 2008. When comparing insurers, look at both the current scale and its history. See whole life dividends: how participating policies pay and guaranteed vs non-guaranteed values in a policy illustration.

Last reviewed October 4, 2026

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Related terms

Policy dividend A non-guaranteed annual payment a participating whole life policy may receive when the insurer's mortality, investment and expense results beat its assumptions. Participating policy A policy, usually whole life from a mutual insurer, that can share in the company's surplus through yearly dividends, which are not guaranteed. Policy illustration A year-by-year projection of a policy's premiums, cash value and death benefit, showing guaranteed figures beside non-guaranteed current assumptions. Non-guaranteed elements Policy features an insurer can change after issue, such as dividends, credited rates and current cost-of-insurance charges, within contract limits. Mutual insurance company An insurer owned by its policyholders rather than shareholders, which may return surplus earnings to them as dividends on participating policies.

Related guides

Closed blocks: what happens to policies a company stops selling Two uses of the term: the pool protecting dividends after a demutualization, and run-off policies an insurer no longer sells. How each works and what it means. Demutualization: when a mutual insurer goes public How a policyholder-owned mutual becomes a stock company, what policyholders received, and the 2000-2001 wave: MetLife, John Hancock, Principal, Prudential. Guaranteed vs non-guaranteed values in a policy illustration What the guaranteed and non-guaranteed columns of a life insurance illustration mean, how they differ, and how to stress-test a projection before you buy. How interest rates affect life insurance prices Insurers invest premiums in bonds, so long-term rates matter most for lifelong and guaranteed policies and least for level term. How each policy type reacts. Whole life dividends: how participating policies pay How participating whole life pays dividends, where the money comes from, 2026 payouts announced by major mutuals, and why none are guaranteed. How to read a life insurance illustration A life insurance illustration is a projection, not a promise. How to read the guaranteed, midpoint and current columns and the NAIC rules behind them.

Related insurers

Guardian Life A New York mutual founded in 1860 that sells participating whole life, term and disability coverage through financial professionals and pays annual dividends. Penn Mutual A Philadelphia-area mutual founded in 1847, selling participating whole life, term, indexed and variable universal life through financial professionals.