Richard CanfieldPodcast Host and IBC Advisor, Ascendant Financial · Authorized Infinite Banking Practitioner | Author of 4 Books

How Interest Rates Affect Policies

30 Jul 2024 · 1 min

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The video explains how interest rate movements affect bond values and, specifically, participating (PAR) life insurance policyholders. While rising rates typically lower the market value of held bonds (hurting bond holders/traders), PAR policyholders can benefit over time because maturing bonds and newly received premiums are reinvested at higher rates, creating a tailwind for long-term policy returns.

Chapters

Interest rates are a bit counterintuitive in the investment space because generally, if you're holding a bond, interest rates go up, the value of the bond decreases. If you're a bond trader, a bond holder, there's this sense that, oh, an increasing interest rate is bad, the value of my bond's going to go down. Having a PAR policy is different. We do hold bonds for the benefit of our PAR policyholders, but rising interest rates generally are going to be a tailwind for PAR policyholders because they're long term investors in interest rates. As you described our bonds, Bonds mature as they pay coupons. As we get new premiums into the account from existing policyholders, those are all being reinvested at higher rates.