Annuity Rider Options
Annuities are insurance products that guarantee an income for your lifetime or for a set number of years. Annuities that defer this guaranteed income are called "deferred annuities." Deferred annuities often come with various riders that can be attached to the annuity to enhance the annuity's function. Make sure you understand what these riders are, how they work and what they do to your annuity contract.
Other People Are Reading
-
Function
-
A rider is an addition to the original annuity contract. The rider modifies the terms and conditions of the annuity. This alteration to the contract often provides a benefit to the policyholder in some way that the original contract is not able to do.
Significance
-
By modifying the original contract, the annuity rider provides additional terms and conditions to the original contract. The rider often charges a fee for the modification which may be a one time fee or an ongoing fee.
-
Benefits
-
The benefits that an annuity rider offers vary. Some riders enhance the liquidity of the annuity. For example, many annuities limit withdrawals to 10 percent of the account balance. Any excess withdrawals incur a penalty. An annuity rider may allow full access to the annuity without any penalties, thus giving you more control over your savings.
Another common annuity rider provides a minimum sustained growth rate in the annuity that is higher than the normal guaranteed rate of the contract. A minimum death benefit guarantee rider establishes a death benefit in the annuity contract that is only affected by the upward movement of the annuity's account balance. Any decrease in the annuity's account value from investment loss does not affect the annuity's death benefit. Nursing home and long-term care riders provide additional liquidity of an annuity's account balance specifically for long-term care needs.
Disadvantages
-
The disadvantage to annuity riders is that they decrease the total annuity account value potential. Since riders cost money, the cost cuts into the interest earnings of your annuity over time. This could decrease the total amount of money you are able to accumulate for retirement.
Considerations
-
When considering whether you should modify your annuity with riders, consider what you want the annuity to do for you. Many riders may initially seem nice to have, but may not be functional or beneficial over the long-term. If your purpose for the annuity is to generate retirement income, realize that the best way to achieve this is to minimize costs associated with your annuity.
-
