Does a higher dividend scale mean a better contract?

How it works

five steps, and you may stop at any of them

From first conversation to a contract in force

1. A thirty minute discovery meeting, with no products
2. The suitability record a licence requires before advice
3. A design meeting, guarantees shown separately
4. Application and underwriting, decided by the insurer
5. An annual review once the contract is in force

The number sits at the end of a chain that starts with pricing. A company that assumed pessimistic returns and heavy claims charges more, meets its assumptions easily, and has more surplus to release. One that assumed less charges less and releases less. Both owners can end up in much the same place. Where each starts, and how much room each company built into its pricing before declaring anything to a policyholder, is a decision made by that company's board and actuary using assumptions about long term interest rates, mortality experience and expenses, none of which a policyholder sees at the point of purchase.

The chain has more links than that single comparison suggests. Pricing sets the premium and the guaranteed schedule at issue, and both stay fixed for the life of the contract regardless of what happens afterward. What varies from year to year is only the layer built on top of that foundation, the amount released from the surplus the participating account actually produced. A company can price conservatively, declare a scale that looks generous on paper, and still leave an owner with guaranteed values no richer than a competitor's, because the comparison that matters most sits in the schedule set at the start rather than in the figure announced every year afterward. Two applicants of the same age and health, applying to two different insurers for the same face amount, can walk away with guaranteed schedules that differ meaningfully even though the scales each company later announces sit close together, and the reverse can just as easily happen.

The cost or the catch

if one is missing the answer is no

Four things required before anything else

1. 01Durable surplus cash flow, in an ordinary year
2. 02A horizon measured in decades rather than years
3. 03A place in the household's wider position
4. 04A clear purpose for the contract itself

Reading the figure as a yield therefore ranks two companies on pricing caution and calls the result performance. The check that works costs nothing. Set the two guaranteed schedules side by side at the same amount and age, read the loan provisions, and decide on those, because those are enforceable. That check requires an actual specimen contract and an actual illustration from each company at the same age and amount, not a single percentage figure lifted from a press release or a company website, since the press release describes the whole block of business rather than the specific contract being offered.

The scale announced by a company is also not something an outside party audits before it is published, in the sense that no independent body publishes a ranking of insurers by scale for a consumer to consult, and the number that reaches the public is chosen by the same company whose contracts it is meant to describe. That does not make the figure false. It makes it a marketing number as much as an actuarial one, released at a moment the company controls, described in terms the company chooses, and read most usefully alongside the guaranteed figures rather than instead of them. The timing of a declaration can also be chosen to land favourably relative to a competitor's, and there is nothing improper about that, since nothing requires insurers to synchronize when they announce a figure that is, in the end, a description of their own results rather than a regulated rate. A buyer comparing two companies in the same shopping season is often, without realizing it, comparing figures declared under different assumptions at different points in each company's own reporting cycle rather than figures measured on the same day against the same standard.

What actually predicts the outcome

The guaranteed column predicts more of the outcome than the scale does, since it is the one figure the insurer is contractually bound to pay regardless of how any future year turns out. The loan provision predicts more of what an owner can actually do with the contract during their lifetime than the scale does, since that provision, not the scale, sets the rate and the terms an owner will face if an advance is ever requested. A contract with an average scale and strong guaranteed values and loan terms can be the more useful contract for many owners than one with an impressive scale sitting on top of weaker guarantees.

The underwriting class assigned at application also has a larger and more durable effect on what a contract actually delivers than a percentage point of scale ever will, since health class affects the premium for the life of the contract in a way no later change in scale can offset.

What the contract's design does with paid up additions matters too, since a design that automatically applies participation to purchase more paid up additions compounds differently over decades than one that pays it out or applies it against premium, and two contracts sitting on identical scales can therefore grow at noticeably different paces simply because of what each contract's own mechanics do with the same declared figure. Reading the specimen contract's dividend option provisions, not only the scale, is part of understanding what a given number will actually produce inside a specific contract, and asking the insurer to illustrate the same scale under each available option side by side turns an abstract clause into a concrete comparison.

Who this comparison misleads most

the cycle a contract is used through

Funding, drawing and repaying

1. 01Premium funds the contract on the agreed schedule
2. 02Value accumulates under the terms of the contract
3. 03The insurer advances against the cash value
4. 04Interest accrues to the insurer while a balance stands
5. 05Repayment restores the capacity that was used

The comparison misleads most the buyer shopping between insurers using a single number pulled from each company's marketing material, since that buyer is comparing pricing philosophy dressed up as performance. It misleads least, or barely at all, an existing owner simply tracking their own contract's scale from year to year against its own history, since that comparison at least holds the company and the contract's design constant even if it still cannot be read as a rate of return.

It matters in a third, quieter way to an advisor's own compensation and to how a contract gets presented at the point of sale, since a company with a currently favourable scale has an obvious interest in featuring that figure prominently in its marketing and in illustrations prepared for a prospective buyer. That interest is not a reason to distrust the number outright, but it is a reason to ask why a particular figure is being emphasized in a given conversation and what it is being compared against.

What this page will not tell you

This page does not tell you which of two specific contracts is the more suitable one for your circumstances, since that depends on your own guaranteed schedules, loan provisions, health class and the purpose the coverage is meant to serve, none of which a general comparison of scales can see. It also does not rank insurers, since this page is not positioned to recommend one company's contract over another's.

An advisor who can produce and compare specimen contracts and guaranteed schedules from more than one insurer is positioned to do that comparison properly, and how to compare two illustrations from different insurers sets out what such a comparison should actually weigh. This page does not claim that a lower or a higher scale, on its own, says anything about how well a company is run or how likely it is to remain able to pay claims, since that solvency question is a separate matter overseen by a company's prudential regulator and by Assuris, not something a scale is designed to signal at all.