Interest-Crediting Method

Published: | Updated: December 24, 2017

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Definition - What does Interest-Crediting Method mean?

Interest-crediting methods are methods of calculating interest changes to fixed index annuities. In the context of insurance, these annuities are commonly offered as a part of a life insurance policy. Interest rates are highly important for many life insurance policies and can significantly impact their value.

Insuranceopedia explains Interest-Crediting Method

There are a number of different interest crediting methods. For example, point to point, monthly average, and monthly sum are all commonly used interest-crediting methods. Point to point is when interest is calculated based on how much an annuity rises in value from one point to the next. Monthly average is based on the average monthly increase over a period, such as 12 months. Monthly sum is based on the percentage increase at the end of every month. Many policies allow the policyholder to choose which method they would like to use.

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