What does excess interest refer to in an insurance settlement context?

In the context of an insurance settlement, excess interest refers to the difference between the guaranteed rates provided by the insurance policy and the actual rates that may be earned from investments. This concept is particularly relevant in life insurance policies, such as whole life and universal life, where insurers often guarantee a minimum interest rate on cash values. However, the insurer may invest these funds in a way that allows for returns above the guaranteed rate, which would be considered excess interest. This additional amount serves as an incentive for policyholders and helps enhance the growth of the cash value of their policies over time.

This understanding is crucial for policyholders, as it demonstrates how their investments can potentially yield more than the minimum expectations set forth in their insurance contracts. It also highlights the importance of reviewing how insurers manage and invest their funds to benefit policyholders.