Dividends
James E. Hodges
U.S. Treasury Decision Number 1743 states:
"That dividends are declared by participating companies are not dividends
in a commercial sense of the word, but are simply refunds to the
policyholder of a portion of the overcharge collected ..."
"... it was necessary, in order to secure new business, to convice the
prospective policyholder of the desirability of the same, and that this
commercial necessity had resulted in the companies making
misrepresentations of facts as to dividends ..."
Hmmmm. Makes you think about if the person your doing business with is
telling the truth about dividends, or simply robbing you of "your" money.
TTRoberts
In article <31C6FF...@host1.dia.net>, "James E. Hodges"
<jho...@host1.dia.net> writes:
_____________
There is no doubt that dividends from a participating company paid to the
policy owner is NOT the same as dividends in other corporations. It is
quite unique due to the type of product sold. For tax purposes this is
true that dividends are considered a return of "overcharge collected" and
therefor not taxable . . . at least up until the dividends exceed premiums
paid. Then they'll be taxed as ordinary income when received.
So, would you or anyone like to explain if dividends can exceed premiums
collected (and can FAR exceed premiums paid), how can these dividends in
excess of premiums paid be considered "refunds" of overcharges collected?
And for a complete explanation, would you like to explain why permanent
policies must have higher premiums and what behind a participating
company's decision that dividends are even going to be paid at all? If
non-par companies, including those that sell only term insurance, pays
dividends to the stock holders, where does that money come from. . . .
excess premiums collected (overcharges)?
Hmmmmm, you're right, it does make me think . . . . . . about people who
just want to disclose only that "part" of the truth to support their own
agenda.
Christopher R. Dunlea
James E. Hodges (jho...@host1.dia.net) has announced the following:
: U.S. Treasury Decision Number 1743 states:
: "That dividends are declared by participating companies are not dividends
: in a commercial sense of the word, but are simply refunds to the
: policyholder of a portion of the overcharge collected ..."
: "... it was necessary, in order to secure new business, to convice the
: prospective policyholder of the desirability of the same, and that this
: commercial necessity had resulted in the companies making
: misrepresentations of facts as to dividends ..."
: Hmmmm. Makes you think about if the person your doing business with is
: telling the truth about dividends, or simply robbing you of "your" money.
Hmmm. Makes me think people from North Dakota should find out exactly
what constitutes an insurance company dividend and how they are generated.
Usually CLU classes on personal coverage explain that.
--
Christopher Dunlea
Dept. of History
Syracuse University
"Think I'd be working in a place like this if I could afford a real snake?"
---"BladeRunner"
Chuck Weinstein
James E. Hodges wrote:
>
> U.S. Treasury Decision Number 1743 states:
>
> "That dividends are declared by participating companies are not dividends
> in a commercial sense of the word, but are simply refunds to the
> policyholder of a portion of the overcharge collected ..."
>
> "... it was necessary, in order to secure new business, to convice the
> prospective policyholder of the desirability of the same, and that this
> commercial necessity had resulted in the companies making
> misrepresentations of facts as to dividends ..."
>
> Hmmmm. Makes you think about if the person your doing business with is
> telling the truth about dividends, or simply robbing you of "your" money.
Would you be so good as to tell us all when that ruling was issued? As I
recall from Basic Life Insurance 101, your company had nothing to do with
this, so I assume that your point doesn't apply to them. Actually,
American Can pays dividends - but only to its stockholders. I assume you
feel this is a better place to put "your" money.
Chuck Weinstein, CLU, ChFC in San Francisco, CA
cm...@ix.netcom.com
Sheldon Jolson
In article <4q9eg3$e...@newsbf02.news.aol.com>, ttro...@aol.com says...
>There is no doubt that dividends from a participating company paid
>to the policy owner is NOT the same as dividends in other corporations.
>It is quite unique due to the type of product sold. For tax purposes
>this is true that dividends are considered a return of "overcharge
>collected" and therefor not taxable . . . at least up until the
>dividends exceed premiums paid.
This is not true, at least for mutual insurers. Mutual insurers do
pay taxes on policyholder dividends paid. I am not sure of the tax
treatment of participating policies issued by stock insurers but
they are somewhat different.
>So, would you or anyone like to explain if dividends can exceed premiums
>collected (and can FAR exceed premiums paid), how can these dividends in
>excess of premiums paid be considered "refunds" of overcharges collected?
Time value of money. If the compound interest on said "overcharge"
is given enough time, it can easily outstrip the initial principal.
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@date@
@time@ - SBJ -
s...@panix.com <Look here for yet another web site - coming soon>
TTRoberts
In article <4qck5i$e...@news1.panix.com>, Sheldon Jolson <s...@panix.com>
writes:
>>So, would you or anyone like to explain if dividends can exceed premiums
>>collected (and can FAR exceed premiums paid), how can these dividends in
>>excess of premiums paid be considered "refunds" of overcharges
collected?
>Time value of money. If the compound interest on said "overcharge"
>is given enough time, it can easily outstrip the initial principal.
Good answer Sheldon, but wouldn't you say there's a lot more to it than
that? In other words, time value of money is not the only factor . . .??
TTRoberts
<jho...@host1.dia.net> writes:
>>TTRoberts wrote:
>> There is no doubt that dividends from a participating company paid to
the
>> policy owner is NOT the same as dividends in other corporations. It is
>> quite unique due to the type of product sold. For tax purposes this is
>> true that dividends are considered a return of "overcharge collected"
and
>> therefor not taxable . . . at least up until the dividends exceed
premiums
>> paid. Then they'll be taxed as ordinary income when received.
>>
>> So, would you or anyone like to explain if dividends can exceed
premiums
>> collected (and can FAR exceed premiums paid), how can these dividends
in
>> excess of premiums paid be considered "refunds" of overcharges
collected?
>> And for a complete explanation, would you like to explain why permanent
>> policies must have higher premiums and what behind a participating
>> company's decision that dividends are even going to be paid at all? If
>> non-par companies, including those that sell only term insurance, pays
>> dividends to the stock holders, where does that money come from. . . .
>> excess premiums collected (overcharges)?
>>
>> Hmmmmm, you're right, it does make me think . . . . . . about people
who
>> just want to disclose only that "part" of the truth to support their
own
>> agenda.
>They CAN be considered "refunds" because the law says they are, plain and
simple.
So, you're saying that it's your understanding that the dividends paid in
excess of premiums paid is still a "refund" because the government
supposedly says so? Further, you're saying "refunds" are taxable, that
the government taxes refunds??
>On non-par companies, including those that sell only term insurance, the
dividends are
>"REAL" dividends meaning that there is no overcharge as you stated.
Define "overcharge."
If I go to a clothing store and buy a pair of pants for $30 and later that
same day find the SAME pair of pants at Walmart for $25 . . . have I been
"overcharged" by that clothing store? If so, why? If not, why not?
>The dividends from a "TRUE" dividend paying company most often come
>from company investments and profit increases which fall to the
stockholder.
Are you saying a companies ONLY profit comes from investments outside the
company?
Because any other profits only come from what customers pay a company for
their products. And if profits come from what customers pay for the
products . . . then they've paid too much? . . . . an "overcharge"? Or
maybe it's only an "overcharge" if a company makes too much profit . . .??
>Stick to the facts, don't try and make it to complicated to the point you
get in a bind.
It only gets complicated if you DON'T get your facts straight. That's why
I'm puzzled as to why you think all this is complicated. And don't worry
about me getting into a bind. . . I've found that honesty and truth does a
good job of keeping one out of a bind.
>Also, you forgot to mention any thing about one of the most powerful
subjects in the
>decision; "this commercial necessity had resulted in the companies making
>MISREPRESENTATIONS of facts as to dividends...", kinda like you are
trying to do.
>STICK TO THE FACTS.
If you're going to stick to the facts, then you should know that the issue
of "MISREPRESENTATIONS of facts as to dividends" has to do with the
dividend RATES, like those that were illustrated back in the 80's and not
explained well enough or in fact misrepresented. It had nothing to do with
things like" refunds" or "overcharges."
I'm only too happy to stick to the facts if you'll just get your facts
STRAIGHT.
James E. Hodges
TTRoberts wrote:
>
> <jho...@host1.dia.net> writes:
> >Also, you forgot to mention any thing about one of the most powerful
> subjects in the
> >decision; "this commercial necessity had resulted in the companies making
> >MISREPRESENTATIONS of facts as to dividends...", kinda like you are
> trying to do.
> >STICK TO THE FACTS.
>
> If you're going to stick to the facts, then you should know that the issue
> of "MISREPRESENTATIONS of facts as to dividends" has to do with the
> dividend RATES, like those that were illustrated back in the 80's and not
> explained well enough or in fact misrepresented. It had nothing to do with
> things like" refunds" or "overcharges."
>
> I'm only too happy to stick to the facts if you'll just get your facts
> STRAIGHT.
Misrepresentations of facts as to dividends had nothing to do with the 80's dividend
rates because this decision was passed in the 1920's. The 80's weren't even here yet as
I recall. You need to read this decision over a few more times until it soaks in your
head what there talking about. It really doesn't even matter what they were
misrepresenting, it's just the fact that they were misrepresented. A very uncredible
thing to do.
TTRoberts
In article <31CECF...@host1.dia.net>, "James E. Hodges"
<jho...@host1.dia.net> writes:
>It really doesn't even matter what they were misrepresenting, it's just
the fact that
>they were misrepresented. A very uncredible thing to do.
Of course!! Misrepresentation is a problem in every industry and even
companies like the one(s) you associate with have to deal with their own
people who misrepresent things. Remember, whenever you point a finger at
someone, there's 3 fingers pointing back at you. ;-)
Sheldon Jolson
In article <4qemf5$h...@newsbf02.news.aol.com>, ttro...@aol.com says...
>Good answer Sheldon, but wouldn't you say there's a lot more to it than
>that? In other words, time value of money is not the only factor . . .?
Thanks...:) Dividends are typically determined based on mortality,
expenses, and investments. The unwritten word about dividend
determination is "competition." Many of you might cringe if I told
you our plan for our 1997 dividend scale. I would also be out of a
job if I did....:)
It is too easy to say that investment and mortality experience results
in a payback of premium for dividends. It is also only true in a
limited sense. I don't want to go into detail (unless someone really
wants to know) as it involves theoretical terms in probability (and
some statistics as well). Suffice it to say that there is a reason
that the IRS is requiring that taxes be paid on a percentage of
policyholder dividends besides the fact that stock-based insurers get
a raw deal when it comes to cost of capital relative to mutuals (and
I work for a mutual).
------------------------------------------------------------------------
Bill
>Has any one had dealings with these people?
James E. Hodges
> Of course!! Misrepresentation is a problem in every industry and even
> companies like the one(s) you associate with have to deal with their own
> people who misrepresent things. Remember, whenever you point a finger at
> someone, there's 3 fingers pointing back at you. ;-)
I didn't point the finger, the U.S. Treasury Decision 1743 did. I'm just letting
everyone on this newsgroup know about there decision on insurance dividends.
Paul Maffia
"James E. Hodges" <jho...@host1.dia.net> writes:
>TTRoberts wrote:
>I didn't point the finger, the U.S. Treasury Decision 1743 did. I'm just
letting everyone on this newsgroup know about there decision on insurance
dividends.
Its part of the law; but to limit the info provided to just that part
that refers to dividends as a return of an overcharge is even more
misleading than what normal insurance agents are accused of indulging it.
Insurance dividends are non-taxable as a return of an overcharge until the
amount so returned and removed from the policy equals the cost basis of
the policy (i.e. total premiums paid). Any dividends beyond that point
are 100% taxable as income when they are removed from the policy.
That is the whole story that should be given and illustrates the fact that
the LAW AND THE IRS RECOGNIZE THE FACT that dividends on whole life
policies from mutual companies are in every sense of the word true
dividends and not just a return of an overcharge.
That is why, a participating policy held for the long term with the
dividends left on deposit (preferably used to purchase additional paid up
insurance even if some is used to pay the premium so that the policy is
self supporting) will have a cash value well in excess of the face value
of the policy. When the returns are properly calculated you will find that
they amount to a compounded annual return ON TOTAL PREMIUM PAID of between
8-9%.
And a return like that; which is higher than treasuries with only a little
added risk, but lower than the stock market at considerably less risk;
will be labeled as a respectable return by anyone who knows what they are
talking about.
Only financial ignoramuses label those returns, which are the historical
norm for participating policies, as LOW.
Paul M.
--
Paul M.
Sheldon Jolson
In article <31D17A...@host1.dia.net>, jho...@host1.dia.net says...
>I didn't point the finger, the U.S. Treasury Decision 1743 did. I'm just
>letting everyone on this newsgroup know about there decision on insurance
>dividends.
A little knowledge is dangerous, it seems. The definition of
dividends being used is old - 1959 tax act at the most recent.
A lot of changes took place beginning in 1982 with TEFRA, DEFRA,
1984 and 1986 Tax Reform Acts, TAMRA (1988), and Tax Act of 1991.
"A mutual life insurance company generally issues participating
insurance policies at fixed premiums, It distributes its "profits"
to the policyholders in the form of either policyholder dividends
or reduced premiums."
Federal Income Taxation of Life Insurance Companies - Ernst & Young,
9A.01.
"The 1984 act expanded the definition of policyholder dvidends. As under
prior law, amounts paid or credited to policyholders that are not fixed in
the contract, but, rather, depend on the experience of the company or the
discretion of the management are policyholder dividends. However, the
definition of policyholder dividends now express;y includes excess interest,
premium adjustments, and experience rated refunds (profit components - IRC
808(b)(1)-(4)."
Federal Income Taxation of Life Insurance Companies - Ernst & Young,
8.02[3]
"Profit-oriented enterprises tend to distribute earnings to their
owners in amounts that are proportional to the owner's equity in
the business. Thus the committee believes that the portion of a
policyholder dividend that is a distribution of earnings can be
measures as a percentage of the mutual company's equity."
S Report Number 169, 98th congress, 2nd session (1984).
Here it is clear that the US Treasury would NOT contradict a
congressional edict as this. Thus the statement above is at
best taken out of context.
There is a reason we don't allow agents to meddle in reserve
or dividend decisions (at least not too much - the squeaky
wheel, etc.)
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