High interest rates mean high returns, making products like whole life insurance more attractive. But, in Q2 of 2024, the Whole Life New Premium totaled $1.46 billion which is down by 7% compared to the prior year’s results. Even the number of policy sales fell 6% in Q2.
Year to date, the whole life new premium fell 7% to $2.92 billion and the policy count fell 5% in the first half of the year.
But why is that? High interest rates should increase the sales of whole-life products. How? Let’s check it out.
- Higher Cash Value Growth: Whole Life policies accumulate cash value over time, which grows based on interest and dividends. Higher interest rates mean that the insurer’s investment returns are higher, leading to faster cash value accumulation for policyholders. This makes the whole life products more attractive.
- Higher Dividend Payments: Many whole-life policies offer dividends to policyholders. So, if insurers invest in higher-yielding assets during periods of higher interest rates, it should lead to higher dividends for the policyholders making whole-life products a better option to purchase.
- Multiple Benefits: In a high-interest-rate environment, whole-life policies may be seen as a good financial investment for those who are looking for both life insurance protection and a way to build cash value in a tax-advantaged manner.
So, what can be the possible reasons behind the fall in sales for whole life products? Let’s check it out.
- Better financial products: With the high interest rates, alternative investment products like bonds, savings accounts, etc., become more attractive. These products offer competitive or better returns with lower premiums and less complexity than a whole-life product.
- Higher cost of borrowing for Policy Loans: If you purchase a whole-life product, you get to borrow against its cash value. However, with higher interest rates, the cost of these policy loans increases making whole life less attractive.
- Affordable Alternatives: As a middle-class consumer, you always look for an affordable option like term life or other investment products offering higher returns during high interest rates.
These are some of the possible reasons for the dampening of whole-life sales in the first half of 2024. Comment down your thoughts.
