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Living Benefits

Guaranteed Lifetime Withdrawal Benefit (GLWB, GWB)

The most elected optional benefit in recent years, and by a significant margin, has been the Guaranteed Lifetime Withdrawal Benefit . This rider guarantees that a specified percentage of the contract value can be withdrawn every year for life. The actual withdrawal percentage is often tied to the age at which withdrawals begin, with higher payments available at older ages.

GLWB’s typically also quote a guaranteed minimum annual growth figure. These guaranteed growth factors can be used to compare benefit rider types and between different insurance companies, but are not equivalent to an annual yield or APR. GLWB guaranteed growth factors are applied to a virtual account balance used solely as a basis for calculating withdrawals—these virtual balances (also called benefit base) are not typically available to withdrawal as a lump sum. This is a pure form of longevity insurance with income guaranteed for life.

In addition to the longevity insurance provided, these have the added benefit of not requiring annuitization—meaning some access to the contract cash balance is possible, even while taking income withdrawals. Unfortunately this feature also costs more, making this the most expensive category of riders available today.

Guaranteed Minimum Income Benefit (GMIB, GIB)

A guaranteed minimum income rider guarantees that the contract can be annuitized based on the better overall performance between the cash value and a virtual account balance with a guaranteed growth factor. The percentage that determines the annual income payment is typically pre-determined at the initiation of the contract, subject to a minimum waiting period and maximum age limits. Annuitization is required in order to make use of a GMIB, meaning all future liquidity is forfeited upon initiation of income payments. This is a pure form of longevity insurance with income guaranteed for life.

GMIB’s also quote a guaranteed minimum annual growth figure. These guaranteed growth factors can be used to compare benefit rider types and between different insurance companies, but are not equivalent to an annual yield or APR. GMIB guaranteed growth factors are applied to a virtual account balance used solely as a basis for calculating the annuitized income payment—the virtual account balance (also called a benefit base) is not available to withdrawal as a lump sum.

1Insured Retirement Institute, 2011 IRI Factbook (Washington, DC: IRI, 2011), 38

Guaranteed Minimum Accumulation Benefit (GMAB, GAB)

A guaranteed minimum accumulation rider guarantees that the contract value will be worth at least a specified amount after 7-10 years. The most common guarantee is 100% of the original investment—meaning that the contract will not fall below the original investment amount. This is a direct form of investment insurance where annual fees are paid to protect against negative returns. If the contract gains in value over the 7-10 years, the rider is essentially worthless.

Guaranteed Minimum Withdrawal Benefit (GMWB, GWB)

A Guaranteed Minimum Withdrawal rider guarantees that 5-7% withdrawals can be taken until at least the original contract value has been recovered. The name is very similar to a Guaranteed Lifetime Withdrawal Benefit but it most similar to the Guaranteed Minimum Accumulation rider in its function. This is another direct form of investment insurance where annual fees are paid to protect against negative returns by allowing withdrawals up to the original investment amount, at minimum. If the contract gains in value over time, the rider is essentially worthless.

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