A client, a 35-year-old single professional with a high income and no dependents, is seeking an investment that provides tax-deferred growth, potential for income in retirement, and protection against market downturns during the accumulation phase. Which of the following variable annuity riders would be most suitable to meet their need for protection against market downturns?
- AGuaranteed Minimum Income Benefit (GMIB)
- BGuaranteed Minimum Accumulation Benefit (GMAB)
- CStepped-Up Death Benefit
- DWaiver of Surrender Charges
Show answer & explanationAnswer & explanation
Correct answer: B. Guaranteed Minimum Accumulation Benefit (GMAB)
The client is seeking protection against market downturns during the accumulation phase. A Guaranteed Minimum Accumulation Benefit (GMAB) rider ensures that the annuity's account value will not fall below a certain percentage of the initial investment or a stepped-up value, even if the underlying subaccounts perform poorly. GMIB relates to future income, while a stepped-up death benefit protects beneficiaries, and waiver of surrender charges relates to liquidity.
Why the other options are wrong
- A. GMIB guarantees a minimum income stream in retirement, but does not protect the account value during accumulation.
- C. A stepped-up death benefit protects beneficiaries, not the client's accumulation value during their lifetime.
- D. Waiver of surrender charges offers liquidity but does not protect the account value from market declines.
Guaranteed Minimum Accumulation Benefit (GMAB)
A variable annuity rider that guarantees the annuity's account value will be at least a certain percentage of the amount invested, or a stepped-up value, at a specified future date, protecting against market downturns.
- Protects the principal or a portion of it during the accumulation phase.
- Guarantees a minimum account value on a specific 'reset' date.
- Helps mitigate market risk, even if subaccounts decline.
- Often comes with additional fees.
Memory trick: GMAB Accumulation: 'A' for Accumulation, 'A' for 'Avoid' market loss.