Most variable annuities are now sold with a "living benefit." These benefits usually fall into one of these categories:
* Guaranteed minimum income benefits (GMIBs): To get this benefit, you must "annuitize" the contract with the issuer: convert the contract value into a stream of payments. If you do, the annuity will be based on the greater of (1) the contract value or (2) an amount that assumes a minimum growth rate on the dollars you’ve invested. The minimum growth rate might be 6 percent a year, for example.
* Guaranteed minimum withdrawal benefits (GMWBs): It is not necessary to annuitize a contract to use this benefit. Instead, you are allowed to withdraw, say, 5 percent of the premiums you’ve paid each year, no matter how the investment accounts have performed.
These living benefits can cost anywhere from 0.15 percent to 1.10 percent a year, so it pays to shop carefully to be confident you know what you’re paying as well as what you’re getting.
