The rate of interest, or growth rate, selected by an insurance company. The assumed interest rate is provided to determine the value of an annuity contract and, therefore, the periodic income payment which can be provided to the annuitant. Combined with other factors such as the annuitant's age upon annuitization, spousal coverage options and the type of annuity coverage chosen, the AIR determines the monthly payment the annuitant will receive.
Investopedia Says:
In other words, the AIR is the minimum interest rate that must be earned on investments in the policyholder's cash-value account in order to cover the insurance company's costs and expected profit margin. A larger AIR will result in a more robust prediction for market returns for the insurance company as well as a greater monthly income payment for the annuitant.
Related Links:
These contracts provide a guaranteed income stream. Learn how they work and their benefits. An Overview Of Annuities
Learn to calculate the present and future value of fixed payments required from you or owed to you. Anything But Ordinary: Calculating The Present And Future Value Of Annuities
These may look like good retirement vehicles, but beware of fees buried in the fine print. Passing the Buck: The Hidden Costs of Annuities
Understand what you're getting when buying these. Here we look at differences, advantages and disadvantages. Exploring Types Of Fixed Annuities
Variable annuities are another way to save money tax-deferred - but don't jump in blindly! Getting the Whole Story on Variable Annuities
