As a prospective annuitant, you can pick from dozens of contract options when building your retirement portfolio, like long-term insurance funds or a minimum monthly income allowance. With these additions, you'll avoid many sleepless nights worrying about "what if" scenarios. But extra assurances come at a cost.
Although these "annuity rider" features aren't essential, they’re worthwhile to add when personalizing your contract. Learn more about the purpose of annuity riders and how they put you in the driver's seat when purchasing an annuity.
Think of annuity riders as the add-on subscriptions of the annuity world. Similar to subscribing to Starz via a streaming service you already have (like Crave), riders are legal provisions you have the choice — but not the obligation — to put into your annuity product.
While you could have a fully fledged, annuity without tacking on riders, these extra features add protections not included in the foundational contract. Riders generally come with an additional cost, but they can provide valuable protections like a guaranteed minimum income, inflation resistance, and or access to your account value after a health emergency.
Annuity riders can help give you clarity over your future. With one or more riders in place, you can breathe easy, knowing that certain annuity aspects are fixed.
Here are a few benefits of adding annuity riders:
Here are six of the most common annuity riders, most of which fall under the “living benefit rider on an annuity” category versus being a death benefit.
With death benefit riders, annuity owners guarantee the payout their loved ones receive after their passing. Often, these riders transfer the initial premiums paid or the current account value of the annuity to designated heirs. There are, however, more sophisticated options, such as stepped-up death benefit riders, which increase the payout threshold and take advantage of market growth.
Whatever method you choose, the goal is to leave a financial legacy for loved ones.
Annuity owners most concerned about outliving their savings turn to the guaranteed lifetime withdrawal benefit (GLWB) rider. With this rider in place, annuitants withdraw a preset percentage of their account balance for a set period of time, including the rest of their lives, even if their annuity's value drops to $0.
The guaranteed rate for a GLWB rider depends on the withdrawal age, with lower yields for annuitants with a longer life expectancy. In exchange for these consistent withdrawals, you’ll often pay an annual percentage, but some annuity products like Gainbridge®'s ParityFlex™ include a GLWB for no additional cost.
Rather than ensuring lifetime income payments, this rider aims to preserve an annuitant's principal. No matter how the market's fluctuations impact an annuity's valuation, GMAB riders lock in a minimum amount at withdrawal time. For example, a GMAB might guarantee the value of your principal, meaning you can't lose money even if the value of the annuity's account value drops.
While GMAB annuities let holders enjoy market gains, they provide a floor where their account value can't fall below.
For annuitants with a pre-existing health condition, the impaired risk rider adjusts the average premium payments to account for the policyholder's life expectancy. After a contract holder proves their medical condition with a doctor's report, the annuity provider increases premium payments and adjusts the contract terms while providing financial protection.
These annuity riders are commonly used with life insurance policies to provide accessible coverage to individuals with a higher risk of denial.
Annuitants may have the option to add a long-term care (LTC) rider to cover extra medical expenses such as assisted living or home care. With this add-on, policyholders receive bonus funding to help with the additional costs of LTC services. LTC riders reduce the odds that a policyholder’s higher cost of care eats into their primary retirement savings.
Retirees afraid of increasing costs sometimes add a COLA rider to their annuity. COLA riders incorporate data on the average cost of goods and services via the Consumer Price Index (CPI) into the annuity's value. At regular intervals, annuitants with a COLA rider are eligible for an increased payout if inflation rises, helping retirees maintain their standard of living.
Even if you’re already eyeing a particular benefit, it's wise to take the time to digest a rider's disclosures. Never rush into adding a rider — consider the following factors before making a decision:
To protect investors, state and federal laws regulate the sale of annuity products and riders, and insurance providers must follow applicable requirements. These regulations include issuing transparent disclosures and suitability standards so investors know what they're getting involved in and whether it fits their financial goals.
Reviewing this information not only ensures you're working with a trusted, compliant provider but also gives you crucial details on your legal requirements so there are zero unwelcome surprises.
With countless personal details, external factors, and legal stipulations, riders always affect annuities on a case-by-case basis. However, these examples highlight the impact this add-on feature might have on someone's retirement funds:
