Assumed Interest Rate - AIR
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 Commentary
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
An Overview Of Annuities
Anything But Ordinary: Calculating The Present And Future Value Of Annuities
Passing the Buck: The Hidden Costs of Annuities
Exploring Types Of Fixed Annuities
Getting the Whole Story on Variable Annuities
See also: Annuitant, Annuitization, Annuity, Annuity Contract, Fixed Annuity, Growth Rates, Insurance, Interest Rate, Required Rate of Return, Variable Annuity
Also spelled: Assumed Investment ReturnAIR