Adjustable Rate

What Does Adjustable Rate Mean?

An adjustable rate is an interest rate that fluctuates over time, unlike a fixed interest rate, which remains constant. Adjustable rates are usually tied to a benchmark that dictates the rate changes, providing a more predictable structure for all parties involved.

Insuranceopedia Explains Adjustable Rate

For example, many lenders use the London Interbank Offered Rate (LIBOR)—the interest rate large banks charge when lending to one another—as a benchmark for setting adjustable rates. When the LIBOR increases, adjustable rates rise; when it decreases, adjustable rates fall.

In the context of insurance, variable life insurance policies may also feature an adjustable rate for their cash value. Policyholders can choose to invest the cash value in interest-earning assets like bonds. This differs from whole life insurance, which guarantees a fixed interest return each year.