Loan Interest Rate

How it's calculated:

Moody's Seasoned Aaa Corporate Bond Yield: This represents the average interest rate on high-quality corporate bonds, which are considered very safe investments.

Your IUL Loan Rate: A life insurance company uses the Moody's yield as a starting point to set your loan rate. This ensures that your rate is fair and reflects current market conditions.

Why it matters:

Fairness: Tying the loan rate to a market benchmark helps ensure you're not overcharged for borrowing from your policy.

Transparency: Using a widely recognised benchmark, the insurance company clearly explains how your loan rate is determined.

Connection to Market: Your loan rate will change over time, reflecting broader economic trends and the cost of borrowing in the corporate bond market.

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Highly rated corporate bonds. It's an indicator of the cost of borrowing for companies with the highest credit ratings.

In the context of Index Universal Life (IUL) policies, this yield determines the maximum loan interest rate that can be charged. It ensures that the rate the insurer charges reflects the current economic conditions and the cost of borrowing in the corporate bond market.

Using this benchmark, the life insurer aligns the loan interest rates with broader market conditions, providing a fair and transparent method for setting IUL loan rates.