Adjustable Rate

Published: | Updated: May 18, 2018

Definition - What does Adjustable Rate mean?

An adjustable rate is an interest rate that can change over time. This is in contrast to a fixed interest rate, which always stays the same. Adjustable rates are typically based on some benchmark that determines the changes. This makes the arrangement more predictable for all parties involved.

Insuranceopedia explains Adjustable Rate

For example, many lenders use the London InterBank Offered Rate (LIBOR), the interest rate that large banks use when they lend to each other, to set their adjustable rates. When the LIBOR goes up, adjustable rates go up and when the LIBOR goes down, adjustable rates go down.

In terms of insurance, variable life insurance policies may use an adjustable rate for their cash value. The insured can buy a policy that invests the cash value in interest-paying assets like bonds. This is in contrast to a whole life policy, which pays a fixed interest return each year.

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