In an interest-sensitive whole life policy, how do changes in interest rates affect policy premiums?

In an interest-sensitive whole life policy, how do changes in interest rates affect policy premiums?

• A. Premiums are fixed and never change
• B. Premiums always increase with higher rates
• C. Premiums always decrease with higher rates
• D. Premiums can change in response to current money market rates

Answer: (D)

Interest-sensitive whole life adjusts to changing market rates. The money that funds the policy’s cash value earns interest tied to current money market rates, so the amount needed to keep the policy in force (the premium) can be adjusted as those rates move. If market rates rise, credited interest increases, which can reduce future premium requirements or improve cash value growth. If rates fall, credited interest decreases, which may require higher premiums to maintain the death benefit and cash value. So premiums can change in response to current money market rates.

Interest-sensitive whole life adjusts to changing market rates. The money that funds the policy’s cash value earns interest tied to current money market rates, so the amount needed to keep the policy in force (the premium) can be adjusted as those rates move. If market rates rise, credited interest increases, which can reduce future premium requirements or improve cash value growth. If rates fall, credited interest decreases, which may require higher premiums to maintain the death benefit and cash value. So premiums can change in response to current money market rates.