Technical interest rate
What is the technical interest rate and what role does it play in life insurance? Learn more here.
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The technical interest rate is used for the calculation of risk-life insurance premiums. It is usually stipulated in the insurance contract. At regular intervals, the Swiss Financial Market Supervisory Authority (FINMA) determines the upper limit for the technical interest rates to be applied by Swiss insurance companies. The technical interest rate valid at the conclusion of a contract is effective during the entire contract period. A change in the interest rate has no effect on existing policies.
The technical interest is the interest rate with which the present value is calculated for an insurance's future obligations, such as the disbursement of the sum payable at death. For whole life insurance, the sum payable at death is thus calculated at the occurrence of the insured event after deduction of insurance costs and interest. Interest for whole life insurance is not calculated on the basis of the premium paid but of the risk premium. The risk premium corresponds to the amount of the premium paid minus the cost premium. The cost premium covers acquisition, collection and administration costs. Thus, the risk premium is the sum of the policyholder's assets that remains after deduction of the insurance costs.