Choosing between a Guaranteed Monthly Income Benefit (GMIB) and a Guaranteed Withdrawal Benefit (GWB) rider can be a crucial decision in developing an annuity contract with your client. As it can dramatically impact the monetary benefits your client will receive, it is imperative to be knowledgeable about the differences between these two riders, and effectively communicate those difference so they are understood by your client.
With a GWB, your client is guaranteed a percentage of their original investment in the form of an income payment (called a “withdrawal benefit”) for the rest of their lives. Since the percentage is based on the amount of money invested, the market does not play a significant factor in income payments.
GMIB riders are slightly more complex. For instance, if a client invests $100,000, they will have a minimum guarantee of $5,000 in income per year. However, with a GMIB rider, if the market value were to fall to zero, the original investment will likely be annuitized over the client’s life expectancy, plus a 10-year certainty, meaning the original investment will be returned in the form of monthly payments. If the client dies only three years into the payment cycle, the benefits will likely be paid to a family member for another seven years. However, should the client die 11 years into the cycle, payments will cease entirely.
It’s important to note, however, if your client passes away in the first year of annuitized payments, not all of the $100,000 investment will be paid back to a beneficiary. They will receive approximately receive 75 percent of the annuitized value.
In summary, a GWB provides a lifetime guaranteed income based on the percentage of the original investment and the GMIB does something similar. However, the GMIB rider may force one to annuitize the benefit if the market value were eventually to fall to zero. When recommending annuities, be sure to evaluate each rider’s suitability for your client’s unique needs.
Important disclosures regarding riders:
- Living benefit riders and guarantees are subject to additional costs and restrictions above and beyond the basic annuity contract. Living benefit riders may not be suitable for all investors.
- Guarantees are based on the claims-paying abilities of the issuing insurance company.
This article is for advisor use only. It is not intended for use with clients or the public.
