Guaranteed Interest Bonds

Guaranteed Interest Bonds. Another method of providing a permanent and certain income to the beneficiary or the insured consists in the issue of "income" or "guaranteed interest bonds" upon the death of the insured or the completion of the endowment period. If the rate of interest assumed for the mathematical computation of rates is 3 percent, the company can, if it is willing to guarantee this rate, allow the proceeds of the policy to be left with it during the lifetime of one or more beneficiaries, and in the meantime pay annually the agreed rate of interest. The plan simply amounts to allowing the proceeds of the policy to stand out at interest, the principal to be paid by the company upon the death of the beneficiary or beneficiaries. Sometimes the policies provide that the annual return will be increased by the annual dividends apportioned by the company, and that, in the absence of restrictions by the insured, the beneficiary, at any time an interest payment is due, may withdraw the amount so left with the company. Another variation of the plan consists in making the rate of interest on the bond considerably higher than the company assumes it can earn. To pay the higher rate, however, the company charges a premium for an additional amount of insurance sufficiently large to furnish the extra return.