How Low Interest Rates May Impact Your Life Insurance Goals

When deciding how much personal life insurance coverage you need, it’s important to look at a number of factors, including how much of your income you want to replace, the amount of debt that needs to be paid off, and any additional needs specific to your beneficiaries. Another factor you should also consider is what type of investment your beneficiaries could choose to make the funds last. 

When you purchased your personal life insurance policy, you may have assumed that those funds could be invested at a 6 or 7 percent interest rate. And based on that rate, you might have assumed that the funds would last long enough to support your loved ones for the long term. Unfortunately, interest rates have been dropping over time, and currently, the rates for stable investment vehicles are quite low. In this economic environment, will your death benefit last as long as your beneficiaries will need it to meet their long-term goals and maintain their standard of living? 

The average yield1 on the 10-year Treasury Bill has dropped since 1995:

1995 2000 2005 2010 2015 2020
6.57% 6.03% 4.29% 3.22% 2.14% 1.11%

Example: A $500,000 death benefit, paid out in $40,000 annual installments at 6 percent interest, will last about 21 years. The same annual installments, assuming a 1 percent interest rate, would only last 13 years. 

Consider what has changed since you bought your personal life insurance policy. Has your income gone up? Do you have more or less debt? Who is depending on your income now? What has happened with interest rates? Remember, a lump sum death benefit is only paid one time. It can’t be replenished if it runs out faster than expected. Talk with your Federated marketing representative about reviewing your coverage to help keep your beneficiaries protected for the long term.

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How Low Interest Rates May Impact Your Life Insurance Goals (pdf)

This article is for general information and risk prevention recommendations only and should not be considered legal, coverage, financial, tax, or medical advice. The information may be subject to regulations and restrictions in your state. There is no guarantee following these recommendations will help reduce or eliminate losses. The information is accurate as of its publication date and is subject to change. Qualified counsel should be sought regarding questions specific to your circumstances. All rights reserved.

Published Date:June 19, 2020

Categories: It's Your Life