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Interest rates are low: Review your life insurance and annuities now

February 14, 2020 / 5 min read

A low interest rate environment and recent market volatility have caused insurance companies to reduce benefits and raise costs. What should you do — and not do — when interest rates are low? We take a look at some options for life insurance and annuities.

On Sept. 18, 2007, the Fed Funds rate decreased by .5%. That turned out to be the first in a series of moves that ended with the Fed Funds rate hovering between 0% and .25% until Dec. 16, 2015.

Why should you care about interest rate history? Three recent Fed Funds rate decreases (July 31, Sept. 18, and Oct. 31, 2019) have reinforced that the low interest rate environment that’s existed for many years may not change anytime soon. These circumstances have caused many, including insurance companies, to think differently about life insurance and annuities. In the last several years, insurers have scaled back the benefits and features by raising the costs, lowering the guarantees, imposing new restrictions, or by eliminating them entirely.

Low interest rate impact on life insurance

Low interest rates are a good thing when financing a new car or getting a mortgage. But when it comes to things like savings accounts and life insurance, a long-term low interest rate environment can really disrupt financial planning and budgeting.

The low interest rate impact on life insurance policies exists for permanent policies such as universal life or whole life that depend on interest rates or dividends set by the company.

Universal life insurance, also commonly referred to as a “UL” insurance, is a form of life insurance that offers flexible premiums, death benefits, and — depending on the funding or policy structure — potential tax-deferred cash value buildup within the policy. The UL policy is typically designed by the insurance agent to last your entire life or through life expectancy, and this design depends heavily on the interest rate (designated by the insurance company) to project a premium that’ll keep the policy from terminating. If the premium is projected using a high interest rate, and the rate drops, the policy could be in danger of terminating over time. The important part of the design is planning a premium to keep the policy in force. With current rates in the low single digits, older policies designed with substantially higher expected interest rates in mind may now need much higher premiums to prevent termination. Similarly, whole life policies purchased during periods of higher dividend crediting rates may be underperforming, relative policyholder expectations, due to continued dividend decreases over time.

It’s important to review all life insurance policies at least every few years, paying special attention to the as-sold interest rate/dividend versus the current interest rates/dividends. This review should include a current projection of the policy to see how long it’s projected to last at the current premium and interest rate.

If the policy is projected to terminate prematurely, there are a few options besides increasing the premium:

Reviewing your annuities: Top items to consider

Like life insurance, annuities deserve a regular checkup, too. As a result of the current low interest rate environment, more frequent reviews may be necessary. Items to consider:

If you have a life insurance policy or an annuity that needs to be reviewed, please contact us to discuss your available options.


Securities offered through Valmark Securities Inc., Member FINRA, SIPC, 130 Springside Dr, #300, Akron, OH 44333 (330) 576-1234. Plante Moran Insurance Agency and Plante Moran Financial Advisors are separate entities from Valmark Securities.

FINRA BrokerCheck:

Securities are offered through Valmark Securities Inc. member FINRA and SIPC, an unaffiliated securities brokerdealer.

The material contained in the herein is for informational purpose only and is not intended to provide specific advice or recommendations for any individual, nor does it take into account the particular investment objectives, financial situation or needs of individual investors. Consult your financial professional before making any investment decision. The information provided has been derived from sources believed to be reliable, but is not guaranteed as to accuracy. Valmark Securities supervises all life settlements like a security transaction and its’ registered representatives act as brokers on the transaction and may receive a fee from the purchaser. Once a policy is transferred, the policy owner has no control over subsequent transfers and may be required to disclosure additional information later. If a continued need for coverage exists, the policy owner should consider the availability, adequacy and cost of the comparable coverage. A life settlement transaction may require an extended period to complete and result in higher costs and fees due to their complexity. Policy owners considering the need for cash should consider other less costly alternatives. A life settlement may affect the insured’s ability to obtain insurance in the future and the seller’s eligibility for certain public assistance programs. When an individual decides to sell their policy, they must provide complete access to their medical history, and other personal information.

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