An annuity is a financial contract between a client and an insurance company in which the client hands over a lump sum or a series of payments in exchange for a steady stream of income in retirement.
Some annuity features, such as a death benefit, may not be included automatically in the base product. Clients may need to purchase these extra benefits, known as riders, separately to add them to their contracts. These optional features can provide extra benefits or protection for your client, but they’ll also increase the cost of your annuity. Since these come with a price tag, it’s best to make sure your clients understand the costs and benefits before adding a rider to their contract. Here are the top 5 available riders:
- Guaranteed Minimum Income Benefit – Also known as GMIB, can ensure that your client always receive a minimum payout, even if the annuity investment takes a hit. The GMIB sets a guaranteed dollar amount or percentage the insurance company must pay, no matter how the annuity performs. These are mainly associated with fixed indexed annuities.
- Guaranteed Lifetime Withdrawal Benefit – Also known as GLWB, allows your client to withdraw a certain amount of money from the annuity each year for the rest of the client’s life, even if the annuity loses much of its value. One of the biggest advantages is the ability to access funds whenever needed, without paying a surrender charge. These are mainly associated with fixed indexed annuities.
- Death Benefit – A death benefit rider can ensure that the beneficiaries to your client’s annuity receive a payout if they pass away prematurely. The payout is typically equal to the amount invested or some other guaranteed minimum. Some annuities, deferred annuities especially, offer a death benefit even if your client has not taken income.
- Long-Term Care Rider – A long-term care rider can help cover costs of nursing homes or assisted living. If your client needs long-term care, the rider provides payments to help cover the costs. If funds are never needed for long-term care, the unused funds can be passed on to beneficiaries. To activate these types of riders, clients likely need to provide proof or documentation about their health. The monthly payout is often a multiple of the regular income, so your client could receive a significant boost if long-term care is needed.
- Cost-of-Living Adjustment – A COLA rider increase the annuity payments each year to help offset the effects of inflation.
Riders can be a valuable addition to an annuity contract, but they are not right for everyone. Before opting to add riders to an annuity policy, make sure you and your client understand how they work, as well as the ongoing costs and benefits they provide. The best rider for your client depends on their individual financial goals and risk tolerance. Give the experts at Wholehan Marketing a call to see which rider options may benefit your clients most today!