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An Annuity Riders Lesson: GMIB vs. GWB

Due diligence is difficult because variable annuity riders are not all the same. There are many GLWB or GMIB riders, and each one has its own benefits and features. Advisors are under greater pressure to review every contract to help clients make an informed decision about what to do next. There are a lot of third-party vendors that can help advisors, including an interesting new service called “Annuity Review”. This allows them to get outside assistance to go over the contract details with clients they might not be comfortable.

These products may seem attractive on the surface but when you look at the whole picture they start to lose their appeal. Clients who invested in these products would typically have an illustration that included the GMIB account projection and future income streams of a specific dollar amount.

The Inside Story: Annuities with GMIB Riders: Under the Hood

Indexed and variable annuities include underlying investments. These can be stocks, bonds or low-cost mutual funds.

The benefit funding is typically a deduct from the principal each year, usually in the range of 0.5% to 1.2%. The benefit is funded by the pooled capital that all the owners have contributed to. It functions in much the same manner as a pension.

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The principal investment funds are transferred to riders accounts each year by automatic transfers. Riders generally get paid via this method. The annual rider fee is typically around 1%. Fixed index annuities usually have no annual fee for riders, but variable annuities can charge income rider fees up to 1.5 percent.

Why is there a rush to exit the variable annuity market?

Like many aspects of an annuity contract, a guaranteed minimum income rider can also be tailored.

There are many GMIB riders available, each with their own benefits and features. It can be difficult to compare insurance companies’ options.

Important to remember, however: If your client dies within the first year of receiving annuitized payments it is not possible to return all $100,000 invested. The annuitized amount will be approximately 75 percent.

Information about Annuities

The living benefit riders are a great way to protect your retirement plan’s fixed income. These riders add an additional layer of protection by providing a defined benefit to your annuity.

GMIB riders can also guarantee annuity payments based upon the maximum value of your investments account. This is known as the “high-water mark”.

Today’s most riders are GLWB–Guaranteed lifetime withdrawal benefits. These are very simple. My experience in the annuity industry has been over 20 years. I recommend them highly. GLWBs offer all the benefits of other types, with less complexity. For the following reasons, you DEFINITELY want the GMWB to be avoided.

GMIB stands for Guaranteed Minimum Income Benefit. GMIB can be an optional guarantee of a “living benefit”, which is embedded in a variable annuity. GMIB is a guarantee that annuity payments will be at least equal in minimum and maximum amounts regardless of performance. If investments are performing well, annuity owners have the ability to lock in a greater payout.