CAS CAS Annuity Riders and Contract Provisions 1 — Questions and Answers
Question 1: What does a Guaranteed Minimum Income Benefit (GMIB) rider on a variable annuity guarantee?
- A minimum death benefit regardless of account value
- The right to annuitize based on a minimum benefit base after a waiting period (Correct answer)
- A guaranteed interest rate on the entire premium
- Protection against surrender charges
Correct answer: The right to annuitize based on a minimum benefit base after a waiting period
A GMIB rider guarantees the contract holder the right to annuitize based on a minimum benefit base (often growing at a set rate) after a specified waiting period, regardless of actual account performance.
Question 2: Which annuity rider provides a guaranteed percentage increase to the benefit base each year the contract owner does not take withdrawals?
- Return of Premium rider
- Guaranteed Minimum Accumulation Benefit (GMAB)
- Rollup rider (Correct answer)
- Enhanced Death Benefit rider
Correct answer: Rollup rider
A rollup rider (also called a deferral bonus or step-up rider) increases the benefit base by a guaranteed percentage — commonly 5–7% — each year the owner defers withdrawals.
Question 3: What is the primary purpose of a Return of Premium (ROP) death benefit rider on an annuity?
- To guarantee lifetime income payments
- To ensure the death benefit is at least equal to total premiums paid (Correct answer)
- To waive surrender charges upon death
- To double the account value at death
Correct answer: To ensure the death benefit is at least equal to total premiums paid
An ROP death benefit rider ensures that if the annuity owner dies and the account value is less than premiums paid, the beneficiary receives at least the total amount of premiums contributed.
Question 4: A Guaranteed Minimum Withdrawal Benefit (GMWB) rider on an annuity guarantees that the contract owner can withdraw:
- The full account value at any time without penalty
- A specified percentage of a benefit base annually until the premium is recovered (Correct answer)
- An unlimited income stream regardless of account balance
- A lump sum equal to the original premium upon surrender
Correct answer: A specified percentage of a benefit base annually until the premium is recovered
A GMWB rider guarantees the owner can withdraw a set percentage (e.g., 5–7%) of the benefit base each year until the total premiums paid are recovered, even if the account value drops to zero.
Question 5: Which annuity contract provision allows a policyholder to withdraw a portion of the contract value each year without triggering surrender charges?
- Free-look provision
- Free withdrawal provision (Correct answer)
- Annuitization clause
- Market value adjustment
Correct answer: Free withdrawal provision
The free withdrawal provision (commonly 10% per year) allows the annuity owner to take partial withdrawals up to a specified amount annually without incurring surrender charges.
Question 6: What does a nursing home or confinement waiver rider on an annuity typically allow?
- Premium payments to stop while in care
- Surrender charges to be waived if confined to a nursing home for a qualifying period (Correct answer)
- Free lifetime income if placed in long-term care
- Policy ownership to transfer to the care facility
Correct answer: Surrender charges to be waived if confined to a nursing home for a qualifying period
A confinement waiver rider waives surrender charges if the annuity owner is confined to a qualified nursing home or care facility for a minimum period (typically 30–90 consecutive days).
CAS CAS Annuity Riders and Contract Provisions 1
What does a Guaranteed Minimum Income Benefit (GMIB) rider on a variable annuity guarantee?