So-called “living benefits” can pay off for variable annuity purchasers during their lifetime, in contrast to the guaranteed death benefits that these contracts traditionally have provided for beneficiaries. Living benefits for variable annuities tend to fall into one of three categories:
* Guaranteed minimum accumulation benefit (GMAB). This is a guarantee that the annuity’s value will attain a certain minimum amount, which is not tied to annuitization.
* Guaranteed minimum income benefit (GMIB). Here, if a consumer elects to annuitize a contract with the issuer, a minimum amount will be applied to the purchase of the immediate annuity, even if the investment accounts have not performed as well.
* Guaranteed minimum withdrawal benefit (GMWB). This type of rider allows investors to take systematic withdrawals that will at least return their investment, over a period of years.
The key to all of these guarantees is whether an insurer will be able to live up to its promises, many years from now. Therefore, you should investigate an insurance company’s financial strength before purchasing a variable annuity.