In 2025, an important interest rate for insured persons will rise for the first time in decades. We explain what consequences this has for new and existing customers.
It is a development that has not happened for more than 30 years: As of January 1, 2025, the so-called maximum technical interest rate rose from 0.25 percent to 1.0 percent. The value was last increased in 1994, from 3.5 to 4 percent. It has fallen steadily since then – until now. But what does that actually mean?
The maximum calculation interest rate is an upper limit for the maximum permissible calculation interest rate that life insurers, pension funds, pension funds and accident insurance companies may use when calculating their provisions. It is not the same as the guaranteed interest rate that insurers offer their customers.
- Also read: This is how life insurance works
The increase is based on a proposal from the German Actuarial Association (DAV), and was then decided by the Federal Ministry of Finance in May 2024. The main reason for this was the central banks’ interest rate increases since 2021, which have also had an impact on savings interest rates and the bond market.
The bond market is the trading place for debt securities, where investors lend money to companies or governments and receive interest in return. For example, if an insurance company buys a government bond, the state pays it interest.
The DAV assumes that interest rates will remain at a higher level, at least in the medium term – due, for example, to demographic change, the isolation tendencies in many countries and the increase in shocks such as wars, the energy crisis and the corona pandemic.
A rising maximum interest rate is good news for insured people as they can expect higher returns. This applies to consumers who conclude new contracts with guarantees, but also to existing customers, as the increased interest level may lead to a higher profit sharing.
The profit sharing is the share of the insurer’s generated surpluses that the insurer pays out to the insured in addition to the guaranteed benefit. It arises when the insurance performs better economically than originally calculated, for example through higher investment income or lower costs.
Even if you have taken out private pension insurance, you can benefit. Namely if your contract includes flexible pension factors. Because these can also increase. Flexible pension factors determine how high your monthly pension is per capital amount saved at the start of the contract, but can change during the contract term.
The rating agency Assekurata, which specializes in insurance, assumes that the current interest rate for life insurance and private pension insurance will increase to an average of 2.65 percent this year. In 2024, it averaged 2.46 percent in new business.
In addition, rising interest rates also have a positive effect on premiums for term life and occupational disability insurance. The cost of these policies is expected to fall. Read here when term life insurance is worthwhile. And here is when occupational disability insurance makes sense.
The General Association of Insurers (GDV) welcomed the federal government’s decision. “Increasing the maximum technical interest rate is an appropriate response to the interest rate level, which has risen sharply since 2021,” said GDV Managing Director Jörg Asmussen. This step will have a “positive impact on the design of life insurance products, which will benefit consumers.”
That depends on your security needs. If your retirement planning is purely about financial returns, you will be better off investing in the stock market than with traditional life or private pension insurance.
- Instead of a savings plan: How useful is ETF pension insurance?
Even with rising maximum interest rates, significantly higher returns are still possible. Broad index funds, or ETFs for short, are a convenient and inexpensive option for retirement planning. Read here how you can easily increase your future pension with an ETF savings plan.
