the Assumed Interest Rate (AIR) is (1) A benchmark used to determine the minimum rate of return which must be realized by a variable annuity’s separate account during the pay out phase in order to keep the annuitant’s payments consistent, or,
(2) In the case of a variable life insurance policy, the minimum rate of return which must be achieved in order to maintain the policies variable death benefit.
Applying "Assumed Interest Rate (AIR)" to Securities Exams:
The AIR is determined by the insurance company and is the basis for the annuity check and or death benefit. For example, in the case of a variable annuity; if the customer’s separate account outperforms the AIR, in the current month, the monthly check will be greater than the last monthly check. If the separate account under performs in relation to the AIR, the monthly check will be smaller than the last. And if the separate account performance is equal to the AIR, this monthly check will be the same as the last monthly check.
In the case of a variable life insurance policy, the separate account must outperform the AIR in order for the variable life benefit to increase. The AIR does not impact the cash value, only the variable death benefit.
Most exams have numerous questions regarding variable annuities. In addition to seeing questions covering the operation and taxation of annuity contracts, you will see questions regarding suitability. It is an absolute must to have a comprehensive understanding of these products. Even if you do not conduct business in these contracts, FINRA is testing them and is concerned about the costs and expenses associated with many annuity contracts. Be sure you have mastered all of this information detailed in our textbooks, exam prep software and video classes. Pass your exam or your money back with our GreenLight guarantee.