LIFE POLICY TYPES · 5 MIN READ

Annuity Payout Options, Death Benefits, and Living Riders

At annuitization, the owner chooses how the accumulated value converts to income, trading income size against protection for survivors. A pure life (life-only) annuity pays the largest income because payments stop at the annuitant's death with nothing to beneficiaries. Life with period certain guarantees payments for a minimum number of years — if the annuitant dies early, the beneficiary receives the rest of the certain period; the longer the certain period, the smaller each payment. Refund annuities (cash refund or installment refund) guarantee that total payouts at least equal the premium, returning any shortfall to the beneficiary. Joint and survivor options cover two lives, continuing payments (in full or a reduced share such as one-half or two-thirds) to the survivor, and can be combined with a period certain. Whether the contract is owner-driven or annuitant-driven determines whose death triggers the contract's death provisions — a distinction that matters whenever the owner and annuitant are different people. Deferred variable annuities add death benefit guarantees during accumulation. A Return of Premium (ROP) death benefit pays the greater of contract value or premiums paid (adjusted for withdrawals). A roll-up benefit credits premiums at a stated growth rate. A ratchet — also called highest anniversary value, high-water-mark, or annual step-up — locks in the contract value at each anniversary and pays the greatest locked-in value if that exceeds the current value. Given premiums of $100,000, a current value of $80,000, and a highest anniversary value of $130,000, ROP pays $100,000 and the ratchet pays $130,000. Enhanced death benefits are funded through higher mortality and expense charges. Living benefit riders protect the owner while alive. GMIB (Guaranteed Minimum Income Benefit) guarantees a minimum annuitization income after a waiting period, typically 10 years. GMAB (Guaranteed Minimum Accumulation Benefit) guarantees a minimum contract value at the end of a holding period. GMWB (Guaranteed Minimum Withdrawal Benefit) guarantees annual withdrawals — typically 5 to 7 percent of a benefit base — without annuitizing, and the lifetime version (GLWB) extends withdrawals for life. Living benefit riders charge roughly 0.50 to 1.50 percent of the benefit base annually.