Comparative Interest Rate Method

Definition - What does Comparative Interest Rate Method mean?

The comparative interest rate method is a method of calculating the cost differences between two insurance policies. This method is interest adjusted, meaning, it takes interest costs into consideration. Cost differences between a decreasing term policy with a side fund, and a whole life policy are typically the types of policies that are compared with the comparative interest rate method.

Insuranceopedia explains Comparative Interest Rate Method

The reason why the comparative interest rate method is often used in the insurance industry is because it helps prospective life insurance buyers to figure out which policy could be best for them. Interest is an extremely relevant variable in life insurance because it can dramatically affect the value of the policy. If one policy is deemed more favorable after a comparative interest rate method calculation, then it can be a strong selling point for the policy.

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