RAA Annuity Riders & Optional Benefits 2 — Questions and Answers
Question 1: What is the key distinction between a Guaranteed Lifetime Withdrawal Benefit (GLWB) and a standard GMWB rider?
- A GLWB allows withdrawals only during the accumulation phase
- A GLWB guarantees that withdrawals continue for the owner's entire lifetime, even after the account value is depleted (Correct answer)
- A GLWB always provides a higher guaranteed withdrawal rate than a GMWB
- A GLWB applies only to fixed annuities while GMWB applies only to variable annuities
Correct answer: A GLWB guarantees that withdrawals continue for the owner's entire lifetime, even after the account value is depleted
The defining feature of a GLWB is that guaranteed income payments continue for the owner's lifetime even if the account value reaches zero, providing true longevity protection beyond what a basic GMWB guarantees.
Question 2: Under a long-term care (LTC) rider on an annuity, benefits are typically triggered when the owner:
- Reaches age 65 and formally retires from employment
- Cannot perform a specified number of Activities of Daily Living (ADLs) or has severe cognitive impairment (Correct answer)
- Has held the annuity contract for at least 10 years
- Requests a partial surrender exceeding $25,000
Correct answer: Cannot perform a specified number of Activities of Daily Living (ADLs) or has severe cognitive impairment
LTC riders on annuities use the same eligibility criteria as standalone LTC policies under HIPAA: inability to perform 2 of 6 ADLs or severe cognitive impairment.
Question 3: What does a 'doubler' or 'multiplier' feature in an annuity LTC rider typically do?
- The surrender charge period is doubled for policies that include the LTC rider
- The monthly income benefit doubles once qualifying long-term care conditions are met (Correct answer)
- The death benefit doubles upon the owner's death
- The credited interest rate doubles during the first year of the contract
Correct answer: The monthly income benefit doubles once qualifying long-term care conditions are met
A doubler (or LTC enhancement) feature doubles the available monthly income payments once qualifying long-term care needs are established, providing enhanced liquidity when care is needed most.
Question 4: Which factor most directly affects the pricing of a Guaranteed Minimum Income Benefit (GMIB) rider?
- The contract owner's credit score
- The prevailing interest rate environment and the owner's age at annuitization (Correct answer)
- The number of beneficiaries named in the contract
- The insurance company's common stock price
Correct answer: The prevailing interest rate environment and the owner's age at annuitization
GMIB rider costs are most directly influenced by the interest rate environment—which affects guaranteed annuitization rates—and the owner's age, which determines the actuarial life expectancy underlying the income guarantee.
Question 5: When comparing GLWB riders across different annuity contracts, which element most significantly affects the benefit's long-term value?
- The insurance company's most recent AM Best financial strength rating
- Whether the benefit base grows at simple or compound interest during the deferral period (Correct answer)
- The marketing name of the rider as branded by the insurer
- The number of investment subaccounts available within the contract
Correct answer: Whether the benefit base grows at simple or compound interest during the deferral period
Whether the income benefit base grows by simple or compound interest has a dramatic impact over long deferral periods; compound interest produces substantially higher guaranteed income amounts than simple interest at the same stated rate.
Question 6: A 'premium bonus' rider on a deferred annuity typically works by:
- Returning all premiums to the owner after 10 years with no penalties or fees
- Adding an immediate percentage increase to the contract value at purchase, subject to a vesting schedule (Correct answer)
- Guaranteeing premium payments from the insurer if the owner becomes totally disabled
- Allowing premium payments to be made tax-free directly from a 401(k) account
Correct answer: Adding an immediate percentage increase to the contract value at purchase, subject to a vesting schedule
Premium bonus riders credit an immediate percentage—often 5–10%—to the contract value at purchase, but these bonuses are typically subject to vesting schedules and may be offset by higher ongoing fees or lower base credited rates.
Question 7: What is a 'spousal continuation' option in the context of annuity contracts?
- A rider that continues premium payments into the contract if the primary earner dies
- A feature allowing a surviving spouse to continue the annuity contract under the original terms rather than taking a lump-sum death benefit (Correct answer)
- A provision requiring both spouses to be named as joint annuitants on the contract
- An option that extends the surrender charge period for surviving spouses under age 59½
Correct answer: A feature allowing a surviving spouse to continue the annuity contract under the original terms rather than taking a lump-sum death benefit
Spousal continuation allows a surviving spouse designated as the sole primary beneficiary to assume ownership of the annuity contract, preserving its tax-deferred status and any guaranteed benefits rather than receiving a lump-sum death benefit.
RAA Annuity Riders & Optional Benefits 2
What is the key distinction between a Guaranteed Lifetime Withdrawal Benefit (GLWB) and a standard GMWB rider?