Annuity Living Benefits Popularity Soars

It's Not a Monopoly Money Gravy Train Provided by Annuity Living Benefits, but You Will Arrive at the Contractually Guaranteed Station.
It's Not a Monopoly Money Gravy Train Provided by Annuity Living Benefits, but You Will Arrive at the Contractually Guaranteed Station. CSA Images / Archive / Getty Images

In the go-go world of annuity sales, the current killer app (for lack of a better term) is what the industry refers to as Guaranteed Living Benefits, or GLBs.  The most popular GLB is called an Income Rider.

We are all familiar with “Death Benefits”, especially when describing the wealth transfer proposition of life insurance.  As I always jokingly say to people that own life insurance or are considering the purchase, “life insurance is the best return on your money that you will never see.”  Get it, you’re dead!

  By the way, your beneficiaries will be happy because life insurance death benefits are distributed tax free. 

So if death benefits are for when you die, the common sense thought progression is that Guaranteed Living Benefits (GLBs) are for when you are alive.  Exactly!  As I always tell my penny pinching “gazillionarie” clients, “there are no U-Hauls behind hearses.”  I’ll let you think about that for a few seconds just to validate how true that saying is.  You can’t take it with you, and a possible end of life goal that I suggest is for the last check you write to bounce.  In other words, enjoy your life!

That’s what Guaranteed Living Benefits (GLBs) attached to annuity policies are all about…..which is to provide needed guarantees while you are still alive.  Let’s take a look at the most popular annuity GLB available today…..Income Riders.

What is an Income Rider?

An income rider is an attached benefit that you can choose to add to a deferred annuity at the time of application.

  Typically, an income rider is a separate calculation that has a contractual percentage increase during the deferral years, with that amount to only be used for lifetime income. 

There is an annual fee for the income rider that is charged for the life of the policy, but that charge is taken out of the cash value and not the income benefit calculation.

Pick your piggy-back poison

Income riders can be attached to a variable annuity or a fixed index annuity (aka: indexed annuity).  You have a choice at the time of application to add an income rider to the policy if that option is offered by the specific carrier and product.  Not all deferred annuities offer Income Riders, but most do.  It’s important to point out that there are many different types of Income Riders, so do your homework and buy the best contractual guarantee for your situation.

Click here to read an article describing Variable Annuities

Click here to read an article describing Fixed Index Annuities

One Phenomenal Phantom Account

An important fact to clarify when it comes to Income Riders is that it is monopoly money unless used for income.  You can’t peel off the interest, transfer the income rider amount to another annuity, or cash in the total.  You can ONLY get the income rider amount via an income stream.  If you don’t access that income stream benefit, then the income rider total is useless. 

The only exceptions to this rule is if the income rider has a dual benefit for confinement care or a death benefit.  For the overwhelming majority of income riders, if you don’t use it for income, that separate calculation goes “poof.”

1 Trillion….and just getting started

The Financial Safety Oversight Committee (FSOC) recently published a study of these GLBs, and stated that there are over $1 Trillion in income rider guarantees currently on the books, with over $150 billion being added every year.

With over 10,000 baby boomers retiring every day, and the demographic tidal wave of people living longer, GLBs will continue to grow in popularity as people look to transfer risk and have more portfolio guarantees. 

Always remember that annuity guarantees are ONLY as good as the company backing those guarantees up, and that includes Guaranteed Living Benefits (GLBs).  There is never an urgency to purchase an annuity, so you should make sure to take your time doing your research and buy from solid quality and financially sound carriers.

  Your GLB will be with you for the rest of your life, so choose carefully.

Click Here to read an article that will explain What are the 3 Biggest Annuity Buying Mistakes?

The article How to Determine the Safety of an Annuity Carrier has information about how to determine the health of a carrier.