What is the definition of Interest-Sensitive Insurance?

Interest-Sensitive Insurance refers to the kind of insurance where the cash value and the policy's face amount may change, based on the investment earnings of the insurance company.

Although most of these policies offer a guaranteed death benefit, the dividend component of the policy will vary and are tied to the changes in interest rates. For instance, universal life insurance policy owners may enjoy a higher increase in cash values caused by a rise in interest rates but may suffer a slower rate of increase when the interest rates take a plunge.

The advantage of this is that the dividends may act as a hedge in case of the rise in inflation. But, if there is a decline in the inflation rate, the policy would earn lower dividend earnings and interest.

• Insolvency
• Misstatement of Age or Sex Provision
• Modified Premium Policies
• Moral Hazard
• Comprehensive Coverage