Assumed Interest Rate

What Does Assumed Interest Rate Mean?

The assumed interest rate (AIR) is a percentage used to determine the periodic income an annuitant will receive when their annuity begins to pay out. This rate is combined with factors such as the insured’s age at the time of annuitization and the cost of the annuity.

The AIR is also referred to as the assumed investment return.

Insuranceopedia Explains Assumed Interest Rate

The assumed interest rate (AIR) represents a portion of the total amount the annuitant pays for the annuity. A higher AIR percentage results in a larger annuity income.

The concept of an assumed rate also appears in other life insurance products that build cash value, such as universal life insurance, where insurers credit interest based on a declared rate.

The AIR serves as the minimum payment the annuitant will receive. If the annuity’s investments perform well, the payments could exceed the AIR. This is similar to how indexed universal life insurance works, with illustrated returns that may rise above the guaranteed floor when the underlying index performs well.