DEFINITION of 'Assumed Interest Rate - AIR'

The rate of interest, or growth rate, selected by an insurance company. The assumed interest rate is provided to determine the value of an annuity contract and, therefore, the periodic income payment which can be provided to the annuitant. Combined with other factors such as the annuitant's age upon annuitization, spousal coverage options and the type of annuity coverage chosen, the AIR determines the monthly payment the annuitant will receive.

BREAKING DOWN 'Assumed Interest Rate - AIR'

In other words, the AIR is the minimum interest rate that must be earned on investments in the policyholder's cash-value account in order to cover the insurance company's costs and expected profit margin. A larger AIR will result in a more robust prediction for market returns for the insurance company as well as a greater monthly income payment for the annuitant.

RELATED TERMS
  1. Annuitization

    The process of converting an annuity investment into a series ...
  2. Payout Phase

    The phase in an annuity during which payments are made to the ...
  3. Systematic Withdrawal Schedule

    A method of withdrawing funds from an annuity account by which ...
  4. Life With Guaranteed Term

    An annuitization-method option with which the annuitant chooses ...
  5. Guaranteed Minimum Withdrawal Benefit ...

    A type of option that annuitants can purchase for their retirement ...
  6. Annuitization Phase

    The period when the annuitant starts to receive payments from ...
Related Articles
  1. Retirement

    Explaining Types of Fixed Annuities

    Learn about this popular retirement tool, its pros and cons and how annuities work to create a guaranteed regular stream of retirement income.
  2. Financial Advisor

    Is Annuitization Your Best Strategy?

    Annuitization has traditionally offered annuity owners a stream of income they cannot outlive, but there are some disadvantages to this form of payout. Consider alternatives, such as income-benefit ...
  3. Retirement

    Deciphering Deferred Annuity Designations

    Tax deferred annuities can be complex arrangements. Discover some of the situations that arise when an owner or annuitant dies and how to reduce tax liability if you're the beneficiary.
  4. Retirement

    Buying Annuities in a Low Interest Rate World

    Learn if buying an annuity makes sense in a low interest rate environment. Also discover the different types of annuities and how interest rates affect them.
  5. Financial Advisor

    Annuities and Baby Boomers: The Pros and Cons

    The pros and cons of annuities that Baby Boomers seeking retirement income need to know.
  6. Financial Advisor

    Maximize the Tax Benefit from Your Annuity

    Understand how nonqualified annuities are taxed during your lifetime, and how they are taxed when passed on to your beneficiaries.
  7. Retirement

    Immediate Annuities: Guaranteed Payout At A Price?

    This vehicle can have very low, or even negative, rates. Find out when it pays to invest.
  8. Financial Advisor

    Advising FAs: Explaining Annuities to a Client

    Conceptually speaking, annuities can be thought of as a reverse form of life insurance.
RELATED FAQS
  1. How are variable annuities taxed at death?

    Find out how variable annuities are taxed after the death of an annuitant, including an explanation of the various payment ... Read Answer >>
  2. In the separate account of a variable annuity, which of the following characteristics ...

    The correct answer is b. When the holder of a variable annuity contract annuitizes the contract, he/she is asking that the ... Read Answer >>
Hot Definitions
  1. Expense Ratio

    A measure of what it costs an investment company to operate a mutual fund. An expense ratio is determined through an annual ...
  2. Pro Forma

    A Latin term meaning "for the sake of form". In the investing world, it describes a method of calculating financial results ...
  3. Trumpcare

    The American Health Care Act, also known as Trumpcare and Ryancare, is the Republican proposal to replace Obamacare.
  4. Free Carrier - FCA

    A trade term requiring the seller to deliver goods to a named airport, terminal, or other place where the carrier operates. ...
  5. Portable Alpha

    A strategy in which portfolio managers separate alpha from beta by investing in securities that differ from the market index ...
  6. Run Rate

    1. How the financial performance of a company would look if you were to extrapolate current results out over a certain period ...
Trading Center