How We Determine Dividends

For Permanent Life Insurance Policies in The Northwestern Mutual General Account

If you want to understand how something works, there's nothing better than a quick lesson. The following information explains how The Northwestern Mutual Life Insurance Company (Northwestern Mutual) determines dividends on premium paying, cash value, permanent life insurance policies in our general account.

First Things First
A brief discussion of gross annual premiums and guaranteed cash values is in order whenever the subject of dividends, and how they are determined, comes up:

• Gross Annual Premiums
  Northwestern Mutual calculates gross annual premiums on a level basis, even though the cost of providing life insurance increases over time as the insured ages. Conservative investment, mortality, and expense assumptions are used. 
• Guaranteed Cash Values
  The amount of the level premiums collected in excess of the costs of the life insurance in the early, low-mortality years of a life insurance contract creates reserves. Guaranteed cash values are derived from these reserves.

Dividends
Dividends arise when the experience of the company turns out better than what was originally assumed in determining the gross annual premiums and guaranteed cash values. Better experience is the result of efficient operations, careful selection of risk, and successful investment management.

The dividend for a given policy year is payable at the beginning of the next policy year, on the anniversary, and is based on the dividend scale for that calendar year. For example, the dividend for the tenth policy year on a policy issued May 1, 1997, is payable on May 1, 2007, and is based on the 2007 dividend scale.

The Dividend Formula
In determining dividends, Northwestern Mutual calculates, for each policy, a value that reflects actual investment, mortality, and expense experience. For any policy year, the dividend is equal to the difference between the policy value at the end of that year and the guaranteed cash value at that time. Any paid-up additions in force for the entire policy year are included in determining the policy value and the guaranteed cash value.
 
 
The policy value at the beginning of the policy year is equal to the guaranteed cash value at the end of the previous year, plus the gross annual premium, minus a mortality and expense charge. The policy value at year-end is equal to the value at the beginning of the year, plus interest credited at the current dividend interest rate.

Dividends are not guaranteed. The dividend interest rate and the mortality and expense charge are determined annually and are based on actual Northwestern Mutual experience.
 
  
 
The dividend can be paid in cash or used to buy paid-up additional insurance. If the dividend is used to buy paid-up additions, it becomes part of the guaranteed cash value at the beginning of the following policy year.

If you're interested in knowing more about Northwestern Mutual's dividend interest rate, your financial representative can help.

Ask for a copy of the following materials:

• A Word About Dividends
• Northwestern Mutual's Dividend Interest Rate
• Power of the Portfolio