Higher interest rates for life insurance: experts see a positive trend

Higher interest rates for life insurance: experts see a positive trend

According to a report from www.volksstimme.de, retirement savers can expect higher interest rates on life insurance again after years of slack. The current interest rate for private pension insurance, including guaranteed interest and profit participation, could rise to an average of around 2.45 percent next year, compared to 2.2 percent this year.

The increase in current interest rates is a clear signal for the industry and consumers. However, according to consumer advocates, there is still room for improvement, as overnight money offers now offer higher returns than the profit participation of life insurance. This is due, among other things, to the additional interest reserve that life insurers had to build up during the low interest rates in order to secure their promises of up to 4 percent for old contracts. A faster reduction of this reserve could lead to a higher profit sharing, from which customers would also benefit.

Increasing the current interest rate is a lengthy process because insurers cannot restructure their long-term funds overnight. A large part of their capital is in low-interest bonds with long maturities, the market value of which has fallen in times of sharply increased interest rates. This has created hidden burdens on insurers' balance sheets, forcing them to exercise caution.

The influential German Actuarial Association is proposing to increase the maximum interest rate from the current 0.25 percent from 2025 for the first time in decades - to one percent. This is intended to prevent companies from overextending themselves with guarantee promises. However, nothing changes for old policies that still pay 4 percent.

Overall, it can be said that increasing the current interest rate for life insurance could have positive effects for retirement savers. It could lead to an increased attractiveness of life insurance as a form of retirement planning, but there is still room for improvement to compete with the returns of other forms of investment. The Actuarial Association's recommendation regarding an increase in the maximum interest rate shows that the industry is striving to ensure the attractiveness of life insurance in the long term.