As you look through your options for permanent life insurance, the cash value benefit may seem like a great draw. Who wouldn't want to watch their life insurance grow, giving them more money to use during their lifetime? But that cash value, of course, comes with a catch, and that is the choice you have to make between guaranteed and non-guaranteed life insurance. As you can guess from the names, one is more stable than the other, but that's not the only consideration.

More Risk for Higher Rates

With permanent life insurance, you get a rate of return on your money, producing gains that are known as a cash value. This type of life insurance functions like a combination of basic life insurance, where your beneficiaries get money when you die, and an investment. If your policy offers them, guaranteed rates of return are generally low, maybe 1 or 2 percent at best. Non-guaranteed rates are higher, often still in the single digits, but more than what you'd get with guaranteed rates. However, for the privilege of getting those higher rates, you assume more risk. The rates aren't guaranteed, and you could find yourself paying more just to keep the policy because the cash value isn't as high as it was predicted to be. (Your premiums in a non-guaranteed policy will be linked to the rate of return.) The death benefit can also shrink. If you want to take a little more risk for the possibility of getting more cash, non-guaranteed might be your best bet.


With a guaranteed policy, the death benefit amount is guaranteed, your premium amounts are set, and the whole thing is more stable. If you want more than term-life insurance but aren't happy about the idea of too much change in terms of premiums and other monetary amounts, guaranteed is much better. You'll get lower rates of return, but the peace of mind might be worth it.

How Stable Do You Want That Death Benefit To Be?

As previously mentioned, the death benefit can change with a non-guaranteed policy. If actual rates of return don't meet the guaranteed policy's predicted rates, then the insurer just has to deal with it; you keep paying your set premium, and your death benefit remains the same. But with a non-guaranteed policy, if the actual rates don't meet the predicted rates, you get to make up the difference. You do this either by increasing your premiums or cutting into your death benefit. If you're getting the life insurance to try some investing, the death benefit might not matter that much. But if you're getting the insurance to provide money to your survivors after your death, you don't want anything to make the death benefit shrink.

If you're still not sure which might be good, meet with your insurance agent to discuss the different types and how they'd work with your needs and situation. This is something you need to take seriously as the wrong choice could be frustrating to deal with.