The loan interest rate on a policy will vary depending on the company.
Typically, interest rates will vary from ~5% – 6% with most insurance companies, although some companies still carry an 8% loan interest rate. Most Insurance policies offer a fixed or variable rate. Some companies offer both, but the policyholder must select whether we want a fixed or variable rate when starting a policy. Once a policy is established, most companies do not allow us to change our loan rate.
It is important to be aware of a company’s variable loan rate features such as: How often can the loan rate adjust? How does the company determine their variable loan rate? Is the policy non-direct or direct recognition? What happens if interest rates go up? Will the dividend always be higher than the variable loan rate?
A fixed loan rate is a bit more straightforward on the surface. Since the fixed rate is… ”fixed” it does not change. With that said, it is important to understand the features of the fixed loan rate. Is a policy with a fixed loan interest rate direct or non-direct recognition? Will the dividend always be higher than the loan rate? How do companies protect themselves if interest rates/dividends go up? Does the policy allow for us to switch a fixed rate to a variable rate at some point? Does the fixed rate ever change?