Guaranteed Earning Increase Death Benefit

A guaranteed earning increase death benefit is a type of option that annuitants can purchase for their retirement annuities. This option would guarantee the beneficiary that the plan would receive an additional predetermined amount of money that would be above and beyond the death benefit in the event the annuitant dies before the annuity's maturity.

Guaranteed earning increase death benefits are riders, otherwise known as additional coverage to the basic policy, which guarantee a death benefit plus an amount on top if the insured person passes away before the fund fully matures. Guaranteed earning increase death benefits are added to variable universal life insurance policies, policies that offer permanent life insurance coverage as well as an investment account. These investment accounts, if performing well, can possibly lower premium payments or raise the death benefit. The flip side is that the value of these investments can also shrink if they don't perform well. If the investments don’t fully fund the policy, the policy can lapse and the beneficiary can lose the death benefit. Guaranteed earning increase death benefits are one version of a guaranteed death benefit and mitigate this risk.

The guaranteed earning increase benefit requires a monthly minimum premium for the additional rider, an amount established at the time of policy issue. Usually the insured person must set the rider for a specified time period, usually over a certain number of years. Many insurers prohibit or limit money that one can borrow in the first few years of the guaranteed minimum death benefit period.

Other death benefit options available through most variable life insurance policies include the level death benefit, which equals the face amount of the policy and stays fixed throughout the life of the policy; the variable death benefit, which varies based on the associated investment account’s value and can fluctuate over time; and the return-of-premium option, which allows the beneficiary to get a portion of the paid premium back once the policy accumulates a certain amount of cash value, though the death benefit amount remains fixed.

The standard amount for a guaranteed earning increase death benefit is 5 percent. We can see how this may work out for a married couple in the following real-world example: Jack had purchased a guaranteed earning increase death benefit option of 5 percent on his $150,000 retirement annuity. If Jack passes away before he can start collecting his annuity, his beneficiary, Jill, will be able to collect a total of $157,000 ($150,000 + 5 percent of $150,000).