Guaranteed Death Benefits
All annuities have death benefits. The IRS premature distribution tax is waived in the case of death for all annuities. Some variable annuities guarantee the greater of the total premiums paid or the cash surrender value to the beneficiaries, whichever is more. An optional Guaranteed Minimum Death Benefit Rider (GMDBR) is also available on some variable annuities, which can provide a higher death benefit than the base minimum benefit automatically provided. There is an additional annual contract charge for those enhanced death benefit riders.
Guaranteed Income Benefits
Designed to strengthen variable annuity sales, the Guaranteed Minimum Income Benefit (GMIB) became popular in the 1990s. Available at an additional charge, GMIB – or living benefit riders – allow investors to receive lifetime income, after a certain holding period, based on the actual account value or a set payout base, whichever is greater. The set payout base is either a rollup equal to premiums credited with an interest rate, or a step-up, which locks in a maximum anniversary value (subject to an age cap).
In effect, the income benefit guarantees a particular minimum level of annuity payments, even if there is not enough money in the owner's account to support that level of payments and no matter how the investment options selected have performed. Though provisions vary among insurers, on the tenth contract anniversary (or later), variable annuities may be converted to a guaranteed amount of income, and investor can begin taking income from the contract.
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