Death benefit earns interest until payout

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Dear Dr. Don,
How do I find out past interest rates between 1977 and the present? Or how do I find out the value of an insurance policy that was not cashed in after a death in 1977? I have looked up the Federal Reserve rates for these times up to 2000 — after 2000, they are not recorded.
— Rose Arrears

Dear Rose,
The Federal Reserve statistical release H.15 Selected Interest Rates is the best source for historical interest rates. It’s especially convenient because you can download the information, too. Some of the series are discontinued, as you point out, but the Treasury constant maturities are available over the entire time period you want to consider.

I got some help on the insurance part of your question from Edward Graves, associate professor of insurance at The American College in Bryn Mawr, Pa. He explained that the death benefit earns interest from the date of death until it is paid out to the policy’s beneficiaries.

He also explained that the rate of interest is set by the insurance company and can be changed at its discretion. If many years elapse before the benefit payment, there may be multiple interest rates used to calculate the interest for the applicable sub-periods. Any portion of the funds left with the insurance company after a partial benefit payment also earns interest.

You would need to know what interest rate the insurance company used over the years in order to check the math on the interest earned. You’d also have to know how frequently interest was paid (compounded) in the account.

You could do a back-of-the-envelope check by using Bankrate’s compound interest calculator and estimating the average interest rate used by the insurance company over time.

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