FINRA Series 6 Investment Company and Variable Contracts Products Representative ExaminationOpening and Maintaining Customer Accounts and Investment RecommendationsHard
A client is considering investing in a variable annuity and is concerned about the impact of market downturns on their principal. Which of the following riders could address this specific concern?
- AGuaranteed Minimum Withdrawal Benefit (GMWB) Rider.
- BLong-Term Care Rider.
- CGuaranteed Minimum Accumulation Benefit (GMAB) Rider.
- DEnhanced Death Benefit Rider.
Show answer & explanationAnswer & explanation
Correct answer: C. Guaranteed Minimum Accumulation Benefit (GMAB) Rider.
A Guaranteed Minimum Accumulation Benefit (GMAB) rider guarantees that the investor's account value will not fall below a certain percentage of their initial investment (or highest anniversary value) by a specified date, thus protecting against market downturns impacting principal. The other riders address different concerns.
Why the other options are wrong
- A. A GMWB rider guarantees a minimum income stream for life, regardless of market performance, but doesn't necessarily protect the principal balance from falling.
- B. A Long-Term Care Rider provides benefits for long-term care expenses, unrelated to market risk or principal protection.
- D. An Enhanced Death Benefit Rider increases the payout to beneficiaries upon the annuitant's death, not protection against market downturns for the living investor.
Variable Annuity GMAB Rider
A Guaranteed Minimum Accumulation Benefit (GMAB) rider is an optional feature in a variable annuity that guarantees the contract owner will receive at least a certain amount of their principal back, or a specified growth floor, even if the underlying investments perform poorly.
- Protects against principal loss due to market downturns.
- Comes with additional fees.
- Often guarantees the initial investment or a stepped-up value.
Memory trick: For market dips, GMAB is your principal's best grip.