Interest rates have been at historic lows for quite some time now, and this has caused a lot of concern among annuity holders. Many people wonder how long this will last and whether or not it will impact the interest rates on their annuities. This guide will discuss how low interest-rate environments impact annuity interest rates. We will also provide tips on protecting yourself from potential rate decreases.
The Impact of Low Interest-Rate Environments
The interest rates at which insurance companies credit interest on their deferred declared-rate fixed annuities are influenced by a variety of factors, two of which are most crucial:
- The insurer’s general account assets are the percentage of return on its overall account assets.
- In today’s competitive insurance market, the interest-crediting rates offered by competing annuity companies on comparable plans may vary significantly.
Most of the return an insurer receives on its general account assets that support its traditional insurance and annuity programs comes from mortgages and other debt instruments.
The low interest-rate environment that began in the early years of the 21st century translates into lower interest credit rates for annuities.
What that means for consumers is as follows:
- The current interest rates on new purchases of fixed annuities and fixed annuity contracts being renewed will be reduced.
- Because of the larger interest rates that are likely to be associated with bonus annuities, there will be less money available for bonuses.
- In the case of new deferred annuity contracts, the guaranteed minimum interest rates may be lower than those offered during periods when interest rates were greater.
- Lower interest rates will result in lower periodic payments (annuitization) under fixed settlement options, as insurance companies use them to calculate regular payments based on the account’s cash value.
Although it is impossible to predict the future, there are steps you can take now to protect yourself from potential rate decreases. Use our annuity interest rate calculator to get estimates. Contact us for a quote, and we will help you find an annuity that best suits your needs. We know that this low-interest environment has caused a lot of uncertainty among annuity holders, but we are here to help you navigate these uncharted waters.
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