Our Experts Reveal 8 Different Methods Life Insurers Use to Credit Interest on Current Assumption Whole Life (CAWL) Insurance

All CAWL policies, just like other types of cash value policies (except variable life), have a guaranteed minimum interest rate. Historically, the guaranteed rates typically ranged from 4 to 6 percent. However, over the last decade of relatively low market interest rates, guaranteed rates on newer policies have declined. The rate insurers actually credit to cash values, called the current rate, is (or has historically been) higher than the guaranteed rate.

Companies use various methods to determine the current rate they credit to cash values. Included in a list of such methods are the:

1. linked rates method;
2. discretionary method;
3. portfolio method;
4. new money method;
5. blending method;
6. modified portfolio method;
7. direct recognition method; and
8. bonus for persistency method.

Reproduced with permission.  Copyright The National Underwriter Co. Division of ALM