Interest Rates: How Life Insurance Agents Can Respond, Not React

Posted by Fred Wilmsen on Nov 21, 2022 11:00:00 AM

Green arrow over spreadsheet indicating interest rates rising483494924Interest rates might as well carry that name because any time they change, we’re all interested. There’s no doubt that, like your clients, you’re watching the moves the government is making. It’s smart. As a life insurance agent, your clients are counting on you to understand all the factors that can impact their financial future and that means understanding current interest rates, where they’re headed, and how that impacts financial planning decisions. 

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How Interest Rates Affect the Insurance Industry

For the last few years, most Americans have been keeping an eye on interest rates as they impact a good number of the financial decisions we make. From bonds and treasury notes to mortgages and life insurance, nearly every class of assets will fluctuate with those rates, their values either rising or decreasing.

When it comes to life insurance, individuals who hold whole life policies can benefit from higher dividends, especially if the money has been invested in funds that perform well. However, those gains may lag as it requires an insurance company to make the right investments, at the right time, and either have stable or decreasing mortality costs and expenses. In short, it’s all got to balance out.

So, it’s smart for everyone, including insurance agents to keep an eye on interest rates.

Current Interest Rates and the Future

In 2020 and 2021, rates dipped to historic lows. However, for the first time in a long time, we are in a rising rate environment as the Federal Reserve attempts to manage the economy. Most notably, recent interest rate hikes have been in effort to stave off and limit inflation. While the primary goal and larger impact of rising insurance rates typically prevents people from borrowing money including car/home loans, credit cards, and more.

With continued concerns about inflation, the Federal Reserve recently made its 6th consecutive .75% interest rate hike and experts expect more, perhaps even by the end of this year. While this pace will not likely continue into 2023, the general consensus is that we may see smaller hikes throughout the coming year as well, especially if the impact continues to keep inflation in the U.S. among the lowest levels of inflation across the globe.

Man using calculator to organize finances 350140891Impact of Current Interest Rates

The rate hike goal that interests us more is that rising interest rates also encourage people to save more because there is, potentially, a great return on those saved funds. This means greater interest from consumers in products that allow them to capitalize on that such as savings accounts, fixed income securities, and life insurance and annuities. In short, with increased market volatility, insurers give consumers the option of safer vehicles with guaranteed rates.

With annual percentage yields (APYs) in various accounts increasing, consumers see interest rate hikes as a great way to get more for their money simply by not spending. Continued hikes can shift consumers’ focus and push them from spending to saving for the future and that is good news for insurance agents.

How Insurance Agents Can Respond, Not React

As an insurance agent, one of the primary roles you play for many of your clients is that of advisor. As an advisor, staying responsive, rather than reactive, helps demonstrate the kind of soft skills that clients look for and trust.

However, this is not reciprocal. In other words, consistent and consecutive interest rate hikes may unnerve many consumers, including your clients. In part, that’s the goal as their reaction is to look for ways to save and secure their current finances and financial future.
insurance agent talks with older couple 484000580
So, how can you help them weather this financial climate? Let’s start with one of the most obvious steps you should be taking and that’s proactively communicating with your clients. However, good communication means you must also be educated on not just the topic but also how the products you’re offering can help your clients meet their goals.

The other big step is for insurance agents to be communicating with their insurer. The goal, for you and for us, is to provide consistency and stability. When times are uncertain and both the Fed and the markets are evolving rapidly, your clients need to know you're there and you need to know that you can easily connect with a policy partner.

At ELCO Mutual, that means talking with a human instead of getting tied up in a phone tree or leaving voicemails and waiting for someone to respond. When you call, we answer. We know your clients are counting on you and, in turn, you’re counting on us. If you’re ready to explore how a partnership with us can help you and your clients navigate the financial future, get in touch with us today!
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