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Guaranteed vs. Non-Guaranteed Permanent
Life Insurance Policies
Fifty years ago, most life insurance
policies sold were guaranteed and offered
by mutual fund companies. Choices were
limited to term, endowment or whole life
policies. It was simple, you paid a high,
set premium and the insurance company
guaranteed the death benefit. All of that
changed in the 1980s. Interest rates
soared, and policy owners surrendered
their coverage to invest the cash value
in higher interest paying non-insurance
products. To compete, insurers began
offering interest-sensitive non-
guaranteed policies.
Guaranteed versus Non-Guaranteed Policies
Today, companies offer a broad range of
guaranteed and non-guaranteed life
insurance policies. A guaranteed policy
is one in which the insurer assumes all
the risk and contractually guarantees the
death benefit in exchange for a set
premium payment. If investments
underperform or expenses go up, the
insurer has to absorb the loss. With a
non-guaranteed policy the owner, in
exchange for a lower premium and possibly
better return, is assuming much of the
investment risk as well as giving the
insurer the right to increase policy
fees. If things don’t work out as
planned, the policy owner has to absorb
the cost and pay a higher premium.
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