Annuity Riders Explained

Annuity riders are the additional provisions attached to your contract that are not usually found on standard plans.  Riders offer additional benefits and protection of both the investment and the investor. Note that each of these benefits carry costs that are passed on to the buyer.  Before signing up, make sure you understand each and every provision of the contract, including all the riders.  You may not need some of these riders.  For those that you require, find out if these can be purchased separately for less cost.  In either case, request that the provisions be removed from your contract to lessen the cost.

The most common riders on annuities are income riders.  These include guaranteed withdrawal and lifetime income benefits. The guaranteed income rider is very popular among recent retirees.  In this type of rider, the insurer guarantees to pay the annuitant monthly, quarterly or annual payments for the annuity holders lifetime. 

The death benefit is another example of common annuity riders.  With the death benefit rider, designated beneficiaries are entitled to receive an amount of money not less than the sum of total premiums paid less withdrawals and payouts. Some riders provide for payment to beneficiaries of sums of money that the annuitant would have received had he lived out the entire life of the policy.  For example, if he has a contract that guarantees annual income for 20 years but he dies on the 5th year, his beneficiaries are entitled to receive the benefit from the 6th year onwards.

The return of premium rider on annuities allow the policy holder to receive the premiums the paid in should an emergency arise.  Various withdrawal options are available.  Under no circumstances shall the annuitant be paid less than the total amount of his investments.

When analyzing annuities, one the most important things to remember is the achievement of your main investing objective in the most cost-effective way possible.  In most cases, they are used to provide log term tax advantaged income.  Therefore it is imperative that you select and pay for only those riders that you actually need and can benefit from.  Always afford yourself options to choose from.  For example, when in the market for policies, take a look at several models and compare.  Don’t just buy the first one that gets your attention.  It is always better to be cautious than sorry.

Annuities are best suited for long term investors.  Any withdrawal prior to age 59 ½ is subject to a 10% tax penalty as well as regular income tax.  Annuities often also have a surrender schedule, meaning that withdrawals may be subject to a penalty by the insurance company if not left in for a predetermined amount of time.  Any guarantees on principal invested is based upon the claims paying ability of the underlying insurance company.