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- Title
Should Variable Policy Loan Interest Rates Be Adopted.
- Authors
Greene, Mark R.
- Abstract
The final report of the Presidents' Committee on Financial Structure and Regulation has recommended that serious consideration be given by the life insurance industry to changing a long standing practice of making loans available to policyholders at fixed interest rates, usually 5 or 6 percent. The proposal is to switch to a variable interest rate system under which borrowing rates in life insurance would change with market interest rates. This system has been widely adopted abroad. A major advantage claimed for the proposed system would be to slow down the disintermediation process which has caused some life insurers to lose substantial amounts of investible funds when market rates of interest exceed the fixed rates. It is argued in this paper that the variable interest system might have more disadvantages than advantages for the life insurance industry and for policyowners; it would be no panacea for many of the ills about which certain members of the industry are complaining.
- Subjects
LOANS; VARIABLE interest rates; LIFE insurance companies; POLICYHOLDERS; DISINTERMEDIATION
- Publication
Journal of Risk & Insurance, 1973, Vol 40, Issue 4, p585
- ISSN
0022-4367
- Publication type
Article
- DOI
10.2307/251935