Variable annuities eventually designed a variable annuity with a Guaranteed Minimum Accumulation Benefit (GMAD) which provided clients with protection against market losses and the owner did not have to die to get it. The rider eventually earned the term “living benefits.”
GMAB guaranteed the heirs of an annuity the minimum of the principal payment in an addition to possible interest if the value of the policy was down due to market declines. The GMAB or living benefits applied this same calculation to this living benefit. Again, you can take advantage of this income while you are still alive.
REQUIRED HOLDING PERIOD
In order to receive this benefit you had to keep the annuity for at least 7 or 10 years. If the policy owner was alive at the end of the declared period of time, then the owner would receive either the higher of the account value or the guaranteed value of the policy.
WALK AWAY BENEFIT
The variable annuities with a GMAB also earned the term “walk away benefit.” If you stayed for the required holding period, you could take the benefit and leave that insurance company and 1035 exchange the value into a new annuity with a new insurance carrier.
Since the public took advantage of walking away with their money, the price for the GMAB became a lot more expensive than guaranteeing the death benefit.
At the end of the holding period you could do the following:
· Rollover the account value
· Roll the GMAB value
· Leave the money
· 1035 exchange
· Annuitize the contract
ASSET ALLOCATION REQUIREMENTS
The living benefits rider will not allow you to choose all of the portfolios that are typically offered to someone who choose the same variable annuity without the rider. Since this rider guarantees the owner a living benefit the insurance company protects themselves from allowing the client to choose riskier allocations.
DISADVANTAGES OF GMAB
· Rider Cost. This rider is not cheap and could eat into your earnings
· The client has to keep the annuity for at least 7 or 10 years
· Limits on investment options
· Future Annitization rates are set at current rates