What is a Guaranteed Death Benefit?

A guaranteed death benefit is a portion of an annuity that allows the investor's beneficiaries to receive a minimum amount of death benefits.

How Does a Guaranteed Death Benefit Work?

Let's say Jane Doe bought an annuity for $500,000 that has a guaranteed death benefit. Jane bought the annuity when she was 45; now she is 60 and has been diagnosed with terminal cancer. The disease is aggressive, and Jane dies in three months. Her contract provides that her son and daughter receive an amount equal to what Jane invested in the contract as a guaranteed death benefit. (The terms vary regarding the guaranteed amount; be sure to check your contract.) The children receive the money regardless of whether the market is up or down.

Some of these benefits are taxable for the children.

Why Does a Guaranteed Death Benefit Matter?

The conditions for using guaranteed death benefits vary by issuer. However, in general, buying a policy with a guaranteed death benefit assures investors that they'll have a minimum amount to pass on to heirs regardless of market performance.