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

[scagnt83]

Im not sure if anyone actually answered the OPs questions...

If it is a participating policy that receives dividends, any dividend increases with the carrier will be reflected in your policy moving forward.

There is no need to purchase a new policy to receive a higher dividend rate. With most carriers, the entire block of policies receives the same dividend. Dividends are variable, so it will go up and down with the interest rate environment to whatever extent dividends follow it within the industry as a whole.

Carriers state a new dividend each year. You will get the "current" dividend rate, just like new policies receive. Buying a new policy will just put you back at ground floor, with higher expenses since you are older and you are starting the premium load again.

 

[scagnt83]

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.

Short term rates determine long term rates. Yes, it takes a while for it to filter up, but long term rates dont go up without short term rates going up.

And higher Fed rates most certainly will increase WL Dividends if they stay increased for a number of years. Look at a historical chart, there is a very clear correlation between the two. In the 70s/80s WL was paying 10%+ dividend rates.

 

[scagnt83]

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

Very true. Just look at annuity rates right now. Traditional academic principals say the 10y rates should be higher than the 5 & 7 year rates. But the increase is so fresh and steep, it has not had time to catch up to the 10y products, so FIA/MYGA rates are inverted. Hardly a single reason to go over 5 or 7 years now unless its for an income rider.

 

[Lloyds of Lubbock]

The dividend season is coming upon us.
NML should announce next week, then Mass, Guardian end of November followd by NY Life and Penn in the mix also.

 

[walthamny]

Dont want to go off topic but Fed has no influence on long term interest rates. It can seem like that to a causual observer but it has been studied pretty well in academics and even with different political opinions every economist agrees Fed is powerless with long term rates. There is no trickle down of short term rates on long term rates. Now in USA long term rates are higher than few years ago, It is actually a very simple supply / demand issue. There is an expectation of China buying less 30 year bonds if tensions rise in the next 10 years. Or China may try to dump their US treasuries hurting their own currency, stopping their exports but pissing off US politicians if they try too much to support Taiwan. US federal reserve can not do anything about Chinese holding about 20% of US Government bonds. There was an expectation countries would not do anything economically stupid in the name of nationalism and pride, but Putin has changed that calculation.

 

[Allen Trent]

US federal reserve can not do anything about Chinese holding about 20% of US Government bonds

I think it is currently less than 4- 5%. Japan & China both own around $1B, but I believe there is $25B in total

Edit:. I guess it is entirely possible china also owns a large part of the US institutions\banks that own around 50%

 

[scagnt83]

Dont want to go off topic but Fed has no influence on long term interest rates. It can seem like that to a causual observer but it has been studied pretty well in academics and even with different political opinions every economist agrees Fed is powerless with long term rates. There is no trickle down of short term rates on long term rates. Now in USA long term rates are higher than few years ago, It is actually a very simple supply / demand issue. There is an expectation of China buying less 30 year bonds if tensions rise in the next 10 years. Or China may try to dump their US treasuries hurting their own currency, stopping their exports but pissing off US politicians if they try too much to support Taiwan. US federal reserve can not do anything about Chinese holding about 20% of US Government bonds. There was an expectation countries would not do anything economically stupid in the name of nationalism and pride, but Putin has changed that calculation.

Many experts disagree with that sentiment. Sure long term rates have more factors that influence them vs. short term rates. But fed rates are the underlying factor that influence all interest rates in the US. There has not been a single time that long term rates were historically high for a significant period when short term rates were not.

To say that fed rates are not a main component of long term bond rates is ignoring imperical evidence.

Over the past 20-30 years there has been an effort to justify the ultra low fed rates by trying to disassociate it from its effects on long term rates. But that effort is ignoring 100+ years of evidence saying otherwise... both in our country and other countries.

 

[SamIam]

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

D you know who wrote the article

 

[Allen Trent]

D you know who wrote the article

No, but I will see if I still have it someplace

 

[Al3x Lee]

Unpopular opinion - Life insurance shouldn't be used as an investment product

I said what I said