Interest-sensitive whole life insurance is a whole life policy in which you are paid an adjustable, variable interest, rather than a guaranteed rate. Like an adjustable rate mortgage, the rate you are paid is often tied into an economic indicator such as the Treasury Bill rate.
Premiums, death benefits, and cash value are all aligned with the variable interest rate so that policyholders have various options. When interest rates rise, you can maintain the same death benefit and percentage that goes toward your cash value but lower your premiums. Or you can hold the premium and death benefit steady while increasing your cash value. In some policies you can increase your death benefit while keeping the premium and cash value rate of return steady. Naturally, the opposite options are also available when interest rates are on the decline: cash-value return decreases while premiums and death benefit are constant; premiums rise so that cash-value return and death benefit remain the same; or death benefit decreases while cash-value return and premiums stay at the same levels.
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