How do interest-sensitive whole life and current assumption whole life insurance policies differ?

The distinction between interest-sensitive whole life and current assumption whole life insurance policies lies primarily in the guarantees associated with their cash values. Current assumption whole life policies are designed to provide a guaranteed minimum cash value, ensuring that as long as the premiums are paid, the policyholder will have a specific cash value that will not fall below a contractual minimum. This aspect provides a stable and predictable benefit for policyholders.

In contrast, interest-sensitive whole life policies do not guarantee a minimum cash value. Instead, the cash value of an interest-sensitive policy varies based on the performance of the insurance company's underlying investments and the credited interest rate, which can fluctuate. As a result, while holders of such policies may enjoy potential growth in cash value depending on market conditions, they also face the risk that their cash value might not meet expectations or even decrease.

Understanding this fundamental difference helps in recognizing how these types of policies appeal to different risk tolerances among policyholders: those who prefer stability and guarantees may favor current assumption whole life, while those willing to accept some level of risk for the potential of greater returns may lean toward interest-sensitive options.