What Is a Guaranteed Rate?

Guaranteed interest rate refers to the insurance premiums that individuals pay to insurance companies, a portion of which has not yet been used to bear insurance liabilities, which is equivalent to the funds pre-paid for insurance or saved in insurance companies. The value added in a certain way, the policyholder also calculates interest at an annual compound interest rate at a certain interest rate. This interest rate is called a guaranteed interest rate or a guaranteed interest rate. The annual compound interest method is commonly known as "profit rolling."

Guaranteed interest rate

Paid by the policyholder

Insurance companies choose and set guaranteed interest rates when designing products based on their estimates of future investment returns. Therefore, the guaranteed interest rate is also called the predetermined interest rate or the predetermined guaranteed interest rate. After a life insurance product with a guaranteed interest rate is sold (after the policyholder purchases it), the guaranteed interest rate has nothing to do with the actual investment return achieved by the insurance company. This is just like the bank's interest rate on deposits paid for savings has nothing to do with the bank's loan income. If the insurance company realizes a return on investment that is higher than the guaranteed interest rate, the insurance company will therefore receive "spreads", which is one of the sources of profit for the insurance company. If the insurance company's investment yield is lower than the guaranteed interest rate, the insurance company will have "spread loss", which is one of the reasons for the loss of the insurance company.

Generally speaking, the higher the guaranteed interest rate is, the more advantageous it is for the policyholder and the insured. Because the lower the guaranteed interest rate, the lower the insurance company's risk, but the higher the price of the life insurance product, the more premiums the policyholder needs to pay. However, if the guaranteed interest rate is so high that the insurance company cannot achieve it and cannot afford it, it will cause the bankruptcy of the insurance company, which will ultimately harm the interests of the insured and the insured.

At present, both guaranteed life insurance products and traditional non-dividend life insurance products must have guaranteed interest rates (years). Asset-linked life insurance products do not have guaranteed interest rates. Universal life insurance may or may not have guaranteed interest rates. For life insurance products with a guaranteed interest rate, the guaranteed interest rate may or may not be indicated in the insurance terms. However, if a universal life insurance product sets a guaranteed interest rate, it must be stated in the terms.