RAA Annuity Riders & Optional Benefits 1 — Questions and Answers
Question 1: What does a Guaranteed Minimum Withdrawal Benefit (GMWB) rider primarily guarantee?
- The policy's cash surrender value will never decrease
- A minimum percentage of the benefit base can be withdrawn annually regardless of account performance (Correct answer)
- The annuity will provide lifetime income without ever depleting the account
- Death benefits will always equal the original premium paid
Correct answer: A minimum percentage of the benefit base can be withdrawn annually regardless of account performance
A GMWB rider guarantees that the contract holder can withdraw a minimum percentage (typically 5–7%) of the benefit base each year, even if the account value drops to zero.
Question 2: Which death benefit rider guarantees that a beneficiary will receive at least the total premiums paid into the contract?
- Return of Premium Death Benefit rider (Correct answer)
- Annual Reset Death Benefit rider
- Earnings Enhancement Death Benefit rider
- Stepped-Up Death Benefit rider
Correct answer: Return of Premium Death Benefit rider
A Return of Premium Death Benefit rider guarantees that the beneficiary will receive at least the total premiums paid, protecting against market losses at the time of the owner's death.
Question 3: What is the primary purpose of a Guaranteed Minimum Accumulation Benefit (GMAB) rider?
- To guarantee income payments for the owner's entire life
- To ensure the account value will reach a specified minimum after a defined holding period (Correct answer)
- To protect against market losses exclusively during the payout phase
- To guarantee the dollar amount of each withdrawal regardless of performance
Correct answer: To ensure the account value will reach a specified minimum after a defined holding period
A GMAB rider guarantees that the contract's account value will be at least a specified minimum amount—often 100% of premium—after a defined accumulation period, typically 7–10 years.
Question 4: The 'step-up' feature in a Guaranteed Minimum Death Benefit (GMDB) rider means the death benefit:
- Increases by a fixed percentage each year automatically
- Locks in at the highest account value on each contract anniversary (Correct answer)
- Steps up when additional premium contributions are made
- Increases in cost as the insured's age increases
Correct answer: Locks in at the highest account value on each contract anniversary
The step-up (or ratchet) feature in a GMDB rider periodically locks in the highest account value achieved at each contract anniversary, ensuring the death benefit reflects market gains even if the account later declines.
Question 5: Which of the following best describes an income rider's 'benefit base' on a deferred annuity?
- A provision that accelerates annuitization in cases of terminal illness
- A separate notional value that grows at a guaranteed rate and is used to calculate future income payments (Correct answer)
- A feature that automatically converts the annuity to an immediate annuity at age 70
- An optional provision allowing partial withdrawals without surrender charges
Correct answer: A separate notional value that grows at a guaranteed rate and is used to calculate future income payments
An income rider maintains a separate benefit base (often called an income account value) that grows at a guaranteed rate and is used to calculate guaranteed lifetime withdrawal payments, distinct from the actual account value.
Question 6: What is the typical annual cost range for adding an income benefit rider to a variable annuity?
- 0.10% to 0.25% of the benefit base annually
- 0.50% to 1.50% of the benefit base annually (Correct answer)
- 2.00% to 3.50% of the benefit base annually
- 3.50% to 5.00% of the benefit base annually
Correct answer: 0.50% to 1.50% of the benefit base annually
Income benefit riders typically cost between 0.50% and 1.50% of the benefit base or account value annually, reducing overall investment return but providing guaranteed income protection.
Question 7: A 'waiver of surrender charge' rider is most likely triggered by which event?
- The annuity owner reaching age 59½
- The owner being confined to a nursing home or requiring qualifying long-term care (Correct answer)
- The annuity reaching its stated maturity date
- A change in tax law affecting annuity distributions
Correct answer: The owner being confined to a nursing home or requiring qualifying long-term care
Waiver of surrender charge riders—also called nursing home waivers—typically allow penalty-free withdrawals when the owner is confined to a nursing home or requires qualifying long-term care, providing liquidity in medical emergencies.
RAA Annuity Riders & Optional Benefits 1
What does a Guaranteed Minimum Withdrawal Benefit (GMWB) rider primarily guarantee?