FINRA Series 6 Investment Company and Variable Contracts Products Representative ExaminationOpening and Maintaining Customer Accounts and Investment RecommendationsMedium
A client, age 45, is seeking an investment that provides tax-deferred growth and supplemental retirement income, but is concerned about market downturns affecting their principal. Which of the following variable annuity riders would BEST address their primary concern?
- ASpousal Continuation Rider
- BDeath Benefit Rider
- CLong-Term Care Rider
- DGuaranteed Minimum Accumulation Benefit (GMAB)
Show answer & explanationAnswer & explanation
Correct answer: D. Guaranteed Minimum Accumulation Benefit (GMAB)
The client's primary concern is protecting their principal from market downturns. A Guaranteed Minimum Accumulation Benefit (GMAB) rider ensures that the annuity's value will not fall below a certain percentage of the invested principal, regardless of market performance.
Why the other options are wrong
- A. A Spousal Continuation Rider allows a surviving spouse to continue receiving payments from the annuity, which is unrelated to principal protection.
- B. A Death Benefit Rider provides a payout to beneficiaries upon the annuitant's death, not principal protection during their lifetime.
- C. A Long-Term Care Rider provides benefits to cover long-term care expenses, not protection against market downturns for the principal.
Guaranteed Minimum Accumulation Benefit (GMAB)
A variable annuity rider that guarantees the annuity's account value will not fall below a certain percentage of the premiums paid, often adjusted for withdrawals, even if market performance is negative.
- Protects principal from market declines.
- Ensures a minimum account value at a specified future date or upon annuitization.
- Comes with an additional cost.
Memory trick: Riders give your annuity extra 'RIDES' to protection or benefits.