As we wind down the summer months and start preparation for the end-of-the-year, our associates are looking ahead at the impact that interest rates will have on client’s portfolios. It’s likely that the low-interest rate environment will continue for a while as the economy tries to recover from the coronavirus pandemic. But although rate increases can be a testament to projected economic growth, higher interest rates impact clients in a variety of ways. A diversified investment strategy can protect clients by providing low correlation among asset classes. Astute advisors can provide their clients with ranging maturities, such as bond ladders, to ensure that even as the price of longer-term bonds are negatively affected by increasing interest rates, the client can invest in new issues paying higher rates.

However, the importance of the effect of rates on the client’s insurance portfolio should not be overlooked. On the one hand, as the Fed rate possibly inches upwards, carriers also revise their dividends positively. This change tends to be gradual and does not respond abruptly to short-term changes in interest rates, but it will certainly provide a cyclical advantage to long-term policyholders of dividend-paying whole life policies. On the other hand, though, clients who elect to borrow from their policies might find themselves at a disadvantage due to increased pressure on the cost of borrowing.

Due to the low-rate environment we have enjoyed for over a decade, clients have turned to affordable liquidity from their life insurance policies, but is this golden opportunity nearing its end? At Kensington Financial Associates we don’t believe a possible upward trend of interest rates needs to spell disaster for clients who want to access their cash-value through a policy loan. Instead, we work with our partner advisors to identify clients who can benefit from refinancing their higher-rate loans, or those who can obtain further tax benefits by using a direct-to-business loan strategy.


We invite you to contact us today to discover how Kensington can save your clients money on their interest expenses.