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Questions and answers about The Prudential Insurance Company of America’s (“Prudential’s”) dividends for traditional permanent life insurance policies.

We have prepared this information to help explain an important part of your Prudential policy—its dividends. The Prudential Insurance Company of America pays dividends so that policyowners like you can benefit from the favorable experience of our participating individual life business.


Candace J. Woods, FSA, MAAA.
Senior Vice President, Chief Actuary

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What is a dividend?

A dividend is a return of a portion of the premiums paid on your policy. Because our participating life policies may pay dividends, their value is enhanced.

How is my policy's dividend determined?

Each year, Prudential's Board of Directors determines the total amount of dividends to be distributed in the coming year. This careful assessment takes into account the amount of funds we need to maintain the capital position and overall financial strength of the company and the overall experience of Prudential's Closed Block.1 The amount of your policy's dividend will generally be in proportion to the policy's contribution to overall Closed Block results.

Dividends on individual policies vary depending on the type of participating policy and when the policy was purchased. Your policy's dividend is based on the actual experience of Prudential's Closed Block with the following:

  • Investment Returns:

    Returns earned on the invested assets supporting life insurance policies similar to yours.
  • Mortality:

    Our death claims experience with life insurance policies such as yours.

This process ensures that you receive a fair share of the company's policyowner dividends paid each year.

Are dividends guaranteed?

No. As the experience factors listed above change, the amount distributed as dividends can be more or less than the amount distributed in other years. This is an important reason why we cannot guarantee your policy's dividends in advance or guarantee that the dividend scale illustrated when your policy was issued will remain in effect. The dividends on your policy will change from time to time, reflecting emerging experience.

While we are not able to guarantee future dividends, Prudential has an excellent track record of making regular dividend payments to our eligible policyowners. We are dedicated to serving our millions of customers worldwide.

What is a dividend scale?

A dividend scale is a complete set of dividends on a policy. The dividend scale for your policy includes the dividend payable in the current year, as well as the dividends Prudential would pay in each future year if there were no changes in current experience factors. When changes in experience affecting dividends are significant enough, a new dividend scale is adopted.

How will my policy values be affected if there's a change in the dividend scale?

The answer to this question depends on whether your policy's values are guaranteed or non-guaranteed.

Guaranteed values are those specified in the policy, such as guaranteed cash values and the guaranteed death benefit. These may be thought of as the "contractual minimums" the company promises to pay. Assuming that you pay premiums when due and take no policy loans, the death benefit and cash value of your policy will never be less than the guaranteed values, regardless of how dividends fluctuate over time. In other words, guaranteed values are not affected by dividends. (Surrenders, withdrawals, and loans will affect your policy values and death benefit and may have tax consequences.)

On the other hand, total cash values and total death benefits are non-guaranteed policy values. The non-guaranteed values listed in an illustration are based on the dividend scale in effect at the time we prepare the illustration. This means that, with the exception of premiums, each of the values not labeled "guaranteed" is based on the assumption that today's dividend scale will continue into the future for all years shown.

Unless you take your dividends in cash, a change in the dividend scale will affect your non-guaranteed values. If dividends increase in a particular year, your policy's total cash value and total death benefit are likely to increase over what was previously illustrated. On the other hand, if there is a decrease in dividends, these values can be lower than previously illustrated.

Will an outstanding loan affect the dividends my policy earns?

Depending on the type of policy you own, an outstanding loan may affect the dividends your policy earns. For some types of policies, Prudential uses the direct recognition method to calculate dividends. In these cases, we adjust the policy's dividend up or down to take into account the loaned funds we were unable to invest directly.

For example, if your loan rate is 8% and Prudential earns a 10% rate of return on investments, we would adjust your dividend down to reflect the policy's cash value we were unable to invest. However, if we earn only 6%, we would adjust your dividend up to reflect the policy's loan value that is generating an increase in return to Prudential.

Remember that outstanding loans and loan interest will also reduce both the death benefit payable to your beneficiary(ies) and your policy's net cash value.

If I use non-guaranteed policy values (including dividends) to reduce the number of out-of-pocket payments, is my policy "paid up"?

No. On a paid-up policy, no further premiums are due at any time. If you're using your policy values to pay your current premiums, this does not mean that your policy is paid up. Premiums continue to be payable under the terms of the policy and you may have to resume making out-of-pocket premium payments at a later date due to dividend changes, or if you take loans or withdrawals.

How can I use my policy's dividends?

Prudential offers several dividend options. You can choose to have your policy's dividends:

  • Purchase Paid-Up Additional Insurance:

    Paid-up additional insurance is additional whole life insurance that is "paid up" (paid for) when purchased. As with your base policy, paid-up additional insurance is eligible for dividends and builds cash value on a tax-deferred basis. By purchasing paid-up additional insurance, you can increase the amount of insurance coverage without providing proof of insurability.
  • Reduce the Dollar Amount of Your Out-of-Pocket Premium Payments:

    This option enables you to reduce the dollar amount of your out-of-pocket premiums whenever dividends are payable on your policy. For example, if your annual premium is $500 and your policy earns $150 in dividends one year, you would be billed for only $350.

    This option is available if you pay your premiums on an annual, semiannual, or quarterly basis. Since dividends are credited on your policy anniversary, only your anniversary bill will be reduced by the dividend amount. If your annual dividend is greater than your anniversary bill premium amount, you may request that the excess dividends be paid to you in cash, used to reduce your loan amount, left to accumulate at interest, or used to purchase paid-up additional insurance. If we have no instructions from you, we will use the excess dividends to purchase paid-up additional insurance.
  • Paid in Cash to You:

    If you elect this option, Prudential will issue you a check for the annual dividend amount, which will be mailed three days before your policy anniversary date.
  • Reduce the Amount of Your Loan Payment:

    If you have an outstanding loan on your Prudential policy, you may direct your dividends toward repaying the loan.
  • Accumulate at Interest:

    If you select this option, your dividends will earn interest at a rate that we specify. You can withdraw these dividends at any time without affecting your policy's guaranteed cash value or guaranteed death benefit. However, accumulated dividends may not be redeposited once they have been withdrawn.

    As with any interest you earn, interest earned on accumulated dividends is taxable in the year credited and may be subject to income tax withholding.
  • Reduce the Number of Out-of-Pocket Premium Payments:

    This payment arrangement allows you to use non-guaranteed policy values—including dividends—to help pay future premiums.

    When non-guaranteed policy values are used to reduce the number of out-of-pocket payments, dividends, paid-up additional insurance, and dividends left to accumulate at interest are used to pay premiums as they become due. Once these values (plus future values, according to the scale currently in effect) are estimated to be sufficient to pay each remaining premium, you can suspend your out-of-pocket premium payments by using your policy values to make these payments.

Because dividends are not guaranteed, there is no certainty of when you may use policy values to reduce your number of out of-pocket payments. In fact, your policy may never reach the point where non-guaranteed policy values are sufficient to pay your premiums. Please also note that, even if you are able to suspend making out-of-pocket premium payments, you may have to resume them at a later date due to dividend changes, or if you take loans or withdrawals.

How will my dividend option affect my policy's total cash value and total death benefit?

The total cash value of your policy equals the guaranteed cash value plus the cash value of paid-up additional insurance, dividends that have accumulated at interest, and, for most of Prudential's permanent policies, termination dividends.2

The total death amount equals the policy face amount, plus all the riders on the insured, plus any paid-up additional insurance, plus any dividend accumulations, plus any termination dividend. It is the amount that would be paid to the beneficiary(ies) if the insured died on the date calculated and did not have any loan debt.

Your policy's total cash value and total death benefit will be greatest if you use your dividends to purchase paid-up additional insurance or if you allow your dividends to accumulate at interest.

Can I change my current dividend option?

In most instances, you can change your dividend option at any time.3 This will enable you to put your future dividends to the best possible use according to your current situation.

Simply notify your financial professional or our Customer Service Office if you wish to change your dividend option.

Are dividends I receive taxable?

Taxation of dividends depends on whether or not your policy is classified as a Modified Endowment Contract (MEC).4

  • If your policy is not a MEC:

    Dividends are considered a return of premium. In general, amounts received over the life of the policy become taxable at the point they exceed the premiums paid for the policy. Amounts received include surrenders of paid-up additional insurance. The cost basis of the policy is the premiums paid to date less amounts previously received tax-free.

The Internal Revenue Service (IRS) does not consider premiums paid for supplemental benefits, such as waiver of premium, to be premiums paid for a life insurance policy. Dividends used to purchase paid-up additional insurance or to pay premiums on the same policy are not taxable under this rule. This is because the dividend distribution and simultaneous premium payment, or purchase of paid-up additional insurance, for the same amount will cancel each other out.

  • If your policy is a MEC:

    Dividends (except those used to purchase paid-up additional insurance or to pay premiums on the same policy) are taxable when earned to the extent of gain in the contract. Gain is calculated as the difference between the cash value of your policy and the cost basis of the policy (which is the premiums paid less amounts previously received tax-free). Paid-up additional insurance surrendered from a MEC is taxable at the time of surrender to the extent of gain in the contract.

Whom should I contact if I have a question?

Your financial professional can help you with all your insurance needs. Please give him or her a call, or call our Customer Service Office at (800) 778-2255 if you have any questions about your policy or its dividends.

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  • 1 The Closed Block is the mechanism established at the time Prudential became a stock life insurance company to provide, over time, for the reasonable dividend expectations of the owners of Closed Block policies—basically, those life insurance policies and annuity contracts that paid or were expected to pay experience-based dividends.
    At the time the Closed Block was created, assets were set aside for the benefit of Closed Block policies in an amount determined to be sufficient to pay benefits and claims on those policies, as well as to continue the year 2000 dividend scale if the experience underlying the scale continued.
  • 2 Termination dividends are dividends paid upon death or surrender that return some of the funds accumulated by the company. Termination dividends are not guaranteed and not all policies pay termination dividends.
  • 3 Some Prudential policies and riders use policy dividends to provide a combination of paid-up additional insurance and One-Year Term insurance. In these cases, the dividend options listed here (including using policy values to reduce the number of out-of-pocket premium payments) may not apply. Refer to your contract provisions for information on how dividends are used on your policy.
  • 4 You would have received a separate letter from Prudential if your policy is a Modified Endowment Contract.


Life insurance policies contain exclusions, limitations, reductions of benefits, and terms for keeping them in force. Your financial professional can provide you with costs and complete details.

For Compliance use only: 1021649-00003-00  Ed. 09/2020 

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