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Guaranteed vs. Non-Guaranteed Permanent Life Insurance Policies
Fifty years ago, most life insurance policies 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 in cash value in higher interest paying non-insurance products. To compete, insurers started offering interest-sensitive non-guaranteed policies.
Guaranteed vs. 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 a set of premium payments in exchange for all risk and contractual guarantees of death benefit. If investments underperform or expenses go up, the insurer has to lose the loss. With a non-guaranteed policy, the exchange for a lower premium and potentially better return is assuming much of the investment risk as well as the insurer giving policy fees increase. If things do not work out as planned, the policy owner has to pay the cost and a higher premium.
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