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Life Health > Life Insurance

Life insurers to benefit from rising interest rates

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Only a handful of industries stand to benefit directly from a steady uptick in interest rates and rising equity prices. Life insurance companies, which offer financial products aimed at providing for retirement and protecting income, will be one of the biggest winners in this environment.

While there are a number of different types of life insurance, the basic idea is simple: The insured pays periodic premiums to the insurer in exchange for a guaranteed payout upon death or, in some cases, disability.

On the other side of the transaction, the insurer employs myriad factors such as age, health history, tobacco use and international travel to assess the risk and life expectancy of a particular individual. Based on that estimate and the amount of insurance requested, actuaries calculate a monthly premium for the policy. Insurers use these same statistics to predict, with some degree of accuracy over a large sample size, their claims during a particular period.

The insurance company makes money by investing the premiums it collects in low-risk portfolios that include large allocations to high-quality government bonds and corporate debt-security classes that traditionally exhibit less volatility than stocks. In total, the US life insurance industry has allocated about three-quarters of its $3.51 trillion in invested assets to bonds and only 2.2 percent to equities.

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