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Window Closing on 4% Interest Rate on Permanent Life Insurance

Window Closing on 4% Interest Rate on Permanent Life Insurance

August 09, 2021

2021 is the final year to lock in the 4% guaranteed1 interest rate used to determine cash values for permanent life insurance policies.  

Don't miss this opportunity to add diversity and balance to your financial portfolio. Cash value accrued over the years in your life insurance policy can be an asset at your disposal that you may withdraw or borrow from to assist you in financing a life event, or even help supplement your income during retirement.2, 3 

      Whole Life Can Be an Asset for Balance

      If all of your eggs are in one basket, you might be running a risk.


Late in 2020, Congress passed the Consolidated Appropriations Act for 2021. In essence, the bill replaces the existing minimum 4% interest rate used to determine the maximum cash values for life insurance with a new floating rate. The new minimum is 2%, though the guaranteed cash value may exceed the minimum.

What Does this Mean?
This change affects the rate used to determine minimum guaranteed cash values on permanent life insurance products.  Beginning in 2022 the maximum rate that can be used to calculate guaranteed cash values will be 3.75%; however, companies can choose to offer the minimum 2%.

Why was this change made?
It will give carriers flexibility to issue more sustainable products in the current prolonged low interest rate environment and reflects current economic reality.

Why does this matter?
In effect, all permanent life insurance products must now be updated to reflect this change.  This is a significant change event.  The change gives carriers flexibility to issue policies with a guaranteed interest rate as low as 2%, but potentially higher. You may see different guaranteed interest rates from different carriers or across different products.  The change allows carriers to choose what guaranteed interest rate to use within a specified range.  In 2022, the range will be from 2% to 3.75%.

Does this change affect the 4% products currently available?
No. Existing permanent life insurance products may continue to be sold in 2021. We have until the end of the year to transition to new products.

What about in-force policies?
There is no change to in-force policies.

When does all this take effect?
2021 is a transition year. Carriers may continue to sell existing products and/or new products. Expect to see new whole life products from carriers in the 2nd half of 2021. By the end of 2021, all 4% contracts must be retired.

Underwriting can take upwards of one to three months or longer, and carriers will be rolling out new products in the 2nd half of the year, so to ensure you receive the guaranteed interest rate of 4% it is important to act soon.

We are always here to help. If you have questions or concerns please go to Schedule an Appointment or call 916-833-6100.

We seek to provide you with the clarity, confidence, commitment, and choices to achieve your financial goals, giving you a newfound understanding of just how much is possible.

      Don't Myth Out on Whole Life

      Whole life insurance can help protect what matters most: your family, your assets, and your legacy.


1 Guarantees are based on the payment of required premiums and the claims paying ability of the issuer.

2 Some whole life polices do not have cash values in the first two years of the policy and don’t pay a dividend until the policy’s third year. Talk to your financial representative and refer to your individual whole life policy illustration for more information

3 Policy benefits are reduced by any outstanding loan or loan interest and/or withdrawals. Dividends, if any, are affected by policy loans and loan interest. Withdrawals above the cost basis may result in taxable ordinary income. If the policy lapses, or is surrendered, any outstanding loans considered gain in the policy may be subject to ordinary income taxes. If the policy is a Modified Endowment Contract (MEC), loans are treated like withdrawals, but as gain first, subject to ordinary income taxes. If the policy owner is under 59 ½, any taxable withdrawal may also be subject to a 10% federal tax penalty.