Whole life cash value automatically adjusts in high interest rate environment?

[newbie2]

Hello Forum,

I sold myself a whole life policy a few years back at a time when interest rate was almost near zero.

Now that interest rate has more than quadruple, will my whole life policy cash value accumulations automatically adjust to the higher interest rate or is my policy more or less locked into the old rates when the policy was first taken out several years ago ?

Is there something that I should do or request from the carrier so that I can take advantage of a higher interest rate environment? Maybe issuing myself a replacement policy that can take advantage of the current higher rates, not sure if people do that??

Thanks

 

[rousemark]

Hello Forum,

I sold myself a whole life policy a few years back at a time when interest rate was almost near zero.

Now that interest rate has more than quadruple, will my whole life policy cash value accumulations automatically adjust to the higher interest rate or is my policy more or less locked into the old rates when the policy was first taken out several years ago ?

Is there something that I should do or request from the carrier so that I can take advantage of a higher interest rate environment? Maybe issuing myself a replacement policy that can take advantage of the current higher rates, not sure if people do that??

Thanks

If it was a traditional WL, the cash value increase is fixed no matter the interest rates.

 

[DHK]

WL dividend rates are more favorable with a rising interest rate environment.

Note that in a WL illustration that WL dividend projections are based on CURRENT dividends and are classified as 'non-guaranteed'. That means they can change based on company mortality experience, company operational expenses, and portfolio performance. As the portfolio improves, you'll see an increase in your policy performance... for MOST policies. (Unfortunately, there's one company that I wouldn't trust them to do that - ONL.)

 

[Tahoe Ray]

If it was a traditional WL, the cash value increase is fixed no matter the interest rates.

Not for a participating policy.

 

[Lloyds of Lubbock]

If you sold yourself a policy two years ago it had a 4% valuation rate.
While interest rates are going up, it takes a while to move a portfolio as large as an insurance companies general account.
If it is two years old you have paid most of the acquisition costs.
You may want to check to see if you can fund a pua rider and boost your return a bit.

 

[rousemark]

Not for a participating policy.

He did not say it was a Par Policy.. But that is true of even a par Policy. The cash values are set but It may have dividend accumulations according to the dividend option chosen. it were an interest ISWL is hardly a traditional WL in my opinion.

 

[Lloyds of Lubbock]

He did not say it was not a par policy either.
"But that is true of even a par Policy".
The cash values that are set are the guaranteed values.
I also believe he may have posted under a different name when he bought this policy.
Just a feeling.

 

[Allen Trent]

I would contact your agent. if the agent isnt able to explain this, you may want to consider filing an E&O claim against him.

just kidding. It will likely take a long time before carrier dividend rates improve. insurance interest rates are very slow to go down & slow to go up. this is because the insurance carrier buys longer term bonds/mortgages, etc. So, when short term rates are going down, insurance products tended to benefit as the rates/dividends didnt drop as quickly because the carriers still had locked in longer term rates. now that rates are going up, it will take a long time for them to go up as the insurance carrier doesnt have the liquid cash to go put it all in the new higher rates. they only have new blocks of cash to invest as those older duration instruments come due.

There was a good article about 15 years ago explaining how bank products like CDs tend to go up quicker in a rising interest rate environment than do whole life & fixed annuities & the bank products tend to go down much faster in falling interest rate markets

 

[walthamny]

When you bought it 2 years ago, 30 year bond was around 2.2% and the whole life policy was assuming the rates would eventually go up eventually. Now that 30 year bond is yielding 4.33% and the long term average 30 year bond is 4.8, unless you are expecting rates to go up to 7% soon you wont see a big change in whole life dividend rates. Fed controls short term interest rates, whole life is influenced heavily by 30 year bond. Fed raising rates or CD' rates have little impact for whole life dividend rates.

 

[Allen Trent]

When you bought it 2 years ago, 30 year bond was around 2.2% and the whole life policy was assuming the rates would eventually go up eventually. Now that 30 year bond is yielding 4.33% and the long term average 30 year bond is 4.8, unless you are expecting rates to go up to 7% soon you wont see a big change in whole life dividend rates. Fed controls short term interest rates, whole life is influenced heavily by 30 year bond. Fed raising rates or CD' rates have little impact for whole life dividend rates.

crazy part is carriers are able to invest this month with available cash at 8-9%. this is why you are seeing CDs & MYGA in the 4-5.5%. new money products will benefit mostly from this current environment in the short term.