Dividend Scale

It is a set of assumptions rather than a rate. The scale reflects the investment return of the participating account, mortality experience, expenses and lapse experience. A change in any of them can move it.

It is declared annually and applies to that year. A dividend credited on an anniversary is determined by the scale in effect on that date, not by the scale that applied when the contract was written.

It moves slowly. Participating accounts hold long-duration assets, so a change in interest rates works through over years rather than months. Insurers also smooth deliberately, aiming for stability in the declared scale rather than tracking results year to year.

And it can fall. A long record of stability is evidence about how an insurer has behaved. It is not a commitment, and no insurer offers one.

Reading the scale is how an owner tells a normal year from a problem. A contract tracking below its original projection is usually normal, because the scale moved. A contract tracking below its guaranteed column would mean something is genuinely wrong.

Every insurer publishes an annual report on the participating account, stating the asset mix, the return and the declared scale. It is the most informative document available about this product and almost nobody reads it.

A reduction is not a reason to act hastily. Surrendering a contract in response crystallises any gain, ends the coverage, and does so at a moment chosen by an insurer's board rather than by the household.

The useful response is a question. What does this change mean for this contract specifically, rather than for the product in general, and what does the guaranteed column still show? A scale reduction is the moment servicing is worth something, and the answer tells an owner whether they have any.

And it is worth knowing the history. Scales across the Canadian industry have moved with long-term interest rates over recent decades, generally downward and gradually, which is context rather than a prediction.

How to read a change in it

A reduction is ordinary. Scales across the Canadian industry have moved with long-term interest rates over recent decades, and a contract tracking below its original projection is usually reflecting that rather than anything wrong.

A contract tracking below its guaranteed column would be different, and would mean something has gone wrong that an owner should raise immediately.

The distinction requires reading the statement. An owner who does not open it cannot tell one case from the other.

What a scale reduction costs a specific contract

Less than a projection suggests, and more than nothing.

The guaranteed schedule does not move. What moves is everything above it: the accumulated value, the total death benefit, and any premium offset point the illustration showed.

The useful question is what it means for this contract, in dollars, on the next anniversary. An advisor who can answer that quickly is doing the servicing the arrangement assumed, and one who cannot has told you something about what the next thirty years will look like.

Where the scale sits in the contract

The dividend scale is not a rate of return and it is not a promise. It is the insurer's declaration for one year, made after that year's experience is known, and it can be lower next year than it is this year. A contract's arithmetic should be read on the guaranteed column first and the scale second, because the guaranteed column is the part that cannot be withdrawn. What it costs to take anything above that column out of the contract is a separate question, governed by the adjusted cost basis.

Two contracts issued in the same year by two insurers can carry different scales, and the higher scale is not automatically the better contract. Scale is one variable among several, and it can be raised by taking more investment risk inside the participating account, which is a change in risk rather than a gain.

Where to find it

In the annual report on the participating account, which every insurer publishes. It states the asset mix, the return for the year and the declared scale, and it is public.

In your annual statement, which shows the dividend actually credited to your contract for the year.

And in the original illustration, which states the scale assumed on the day the contract was written. Setting the three beside each other is the exercise that answers the question most owners have without knowing where to look. The same illustration states a maximum deposit, a ceiling set by the exempt test rather than by the insurer.

Why this term has a page of its own

Because it is the one figure in the subject that governs everything not guaranteed. Every projection, every premium offset point and every future accumulated value on an illustration rests on it. On a corporate-owned contract it also moves the death benefit, and with it the eventual credit to the Capital Dividend Account.

Because it is presented as though it were stable, and it is not. An illustration shows a single scale applied across thirty years, which has never happened to any contract.

And because an owner meets it at the worst moment. Nobody notices it while everything runs as shown. They meet it in the year a statement shows less than they expected, and that is the year it matters to be able to tell an ordinary reduction from a genuine problem.

One last thing about reading a scale change when it is announced. An insurer that reduces its scale will usually publish the reasoning alongside the number, and that reasoning is more informative than the number itself. A reduction driven by sustained low bond yields says something different about the years ahead than one driven by a single year of unusual claims experience. Ask which it was.