Non-Guaranteed vs Guaranteed Death Benefit
“What is Non-Guaranteed vs Guaranteed Death Benefit?”
Basically Non-Guaranteed vs Guaranteed Death Benefits is a term that refers to whole life policies. Lets cover some background details to simplify these terms!
You can have a whole life policy that either runs for your entire lifetime or you can have it where it runs until your a certain age (not to be confused with term, term policies do not build cash value. We are only talking about policies that build cash value here). That age can be determined with your insurance agent on whatever grounds they have set within the policy. I prefer lifetime policies because my clients will never have to worry about what they are going to do after their coverage runs out.
A Lifetime policy will cover the client until death whether they live to be 45 or 145! However in some policies the coverage may only be good for 30 or so years. This is not a term policy but an age at which the policy will endow. That means that the cash value inside of the policy will match the benefit to be paid. This type of policy is where Non-Guaranteed vs Guaranteed Death Benefits apply.
If you buy a policy that is not a lifetime policy it will eventually have built up so much cash value that the benefit to be paid is equal to the cash value built up within the policy. This is simply known as a time when the policy endows. These types of policies have an exact rate to be paid out known as a “Sum Assured” amount. Lifetime policies can have adjustable “Sum Assured” amounts to be paid.
Premiums paid into whole life insurance policies build interest. Those interest rates can be “guaranteed” or “non-guaranteed.” If your policy has a 16-year guaranteed death benefit that means that the premiums you are paying in have a guaranteed rate of return or interest for 16 years. That interest rate is paid out as part of the benefit or the endowment. Aside from the guaranteed benefit there is also a non-guaranteed benefit where the interest earned is not guaranteed and the benefit then is variable depending on the interest rates of the time. So basically Non-Guaranteed vs Guaranteed Death Benfit are guaranteed or non-guaranteed interest rates to be paid on the premiums going in. Non-guaranteed death benefits are variable rates paid on premiums going in and therefore you have a variable benefit paid out.
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Josh Sparks
joshsparks@joshsparks.com
