Annuity Riders | Everything You Need to Know About Riders Annuities

All about annuity riders

Insurance companies offer several optional riders to annuity products to make them more flexible. Riders provide added benefits to a basic annuity contract, such as greater access to the annuity’s account value, or enhanced income. In most cases, riders require an additional fee. Here are the most common riders offered by annuity providers.

Immediate annuity riders

Cost-of-Living Adjustment Rider. This rider helps address inflation by raising your annuity’s income payment at a set percentage annually. The added cost of this rider causes the first several annuity payments to be less than they would be without the rider. It may take several years before the cost-of-living increases equal, then exceed what payments would have been without the rider.

Return of Premium Rider. This type of immediate annuity guarantees you or your beneficiaries will receive an amount equal to your initial premium, regardless of when you pass away. This benefit is sometimes called a cash refund rider.

Impaired Risk Rider. When you purchase a life insurance policy, the less healthy you are, the more risk the insurance company takes on. The opposite is true with a lifetime income immediate annuity; healthier people potentially cost the company more because they will typically live longer.

If you buy an annuity and you have a medical condition that will likely shorten your life span, you can apply for an impaired risk rider to receive higher income payments. The impaired risk rider, which is medically underwritten, bases your annuity payments on the shortened life expectancy caused by a medical condition. This results in payments being greater than they would be for a person in good health.

Commuted Payout Rider. This option allows you to withdraw a lump sum from the annuity should the need arise. The payout is usually limited to a percentage of the premium paid, and there are often limits on when it can be used.

Deferred annuity riders

Income Rider: This is an optional benefit that provides a lifetime income stream that you can turn on in the future. With income riders, the income value is completely separate from the annuity’s accumulation value. An income rider also gives you the flexibility of stopping income and restarting it again. The value of an income rider grows at a contractually guaranteed rate. This value is not available for a lump sum, only as a source of lifetime income payments.

Long-Term Care Rider. If your annuity is still in the accumulation phase, a long-term care, or confinement, rider will allow you to access some or all of the annuity’s account value without incurring a surrender penalty if you are confined to a nursing home or other care facility. If you are drawing income from the annuity, this rider will increase your income payments, up to double.

Terminal Illness Rider. This rider works similarly to a long-term rider, except that its benefit triggers if the owner is diagnosed with a terminal illness.

Disability/Unemployment Rider. These riders will waive surrender charges in the event the owner becomes disabled or unemployed for a certain period of time.

Variable annuity riders

Because of the added risk involved in a variable annuity, insurance companies have added several types of guaranteed benefits to these products in the last several years.

Guaranteed Minimum Accumulation Benefit Rider. This rider restores the annuity’s accumulation value to the amount of total premiums paid if, after a certain number of years, the accumulation value is less than the premiums paid, minus any withdrawals. So if you paid a $100,000 premium and the accumulation value dropped to $80,000 because of market losses, this rider would restore the accumulation value to $100,000 — assuming you did not take any withdrawals.

Guaranteed Minimum Withdrawal Benefit Rider. This rider guarantees you the ability to withdraw a set percentage from your annuity every year until the value of the original premium paid is withdrawn. This is essentially a money-back guarantee should your account decrease in value.

Guaranteed Minimum Income Benefit Rider. This rider offers a minimum income regardless of your actual accumulation value. After a minimum number of years (often 5 to 10), the rider allows you to convert the variable annuity to an immediate annuity and receive payments based on the greater of the minimum account value or the annuity’s accumulation value.