The Death Benefits of Variable Annuities

Death benefits are usually provisions included in variable Annuity contracts that guarantee to pay the family or any designated beneficiary a certain amount upon the death of the annuitant at any time during the accumulation period.  Depending on the contract, the amount may be the total amount of premiums already paid or a certain percentage thereof.

The amount may not be worth much especially if only several installments have been paid, but considering the nature of variable annuities where the value may rise or fall depending on factors set forth in the contract, it will at least assure you that your heirs will receive something in the event of your untimely death.  One option is to get a separate insurance policy that will supplement that.

In case you cannot afford a separate policy, death benefit riders are sometimes offered by insurance companies that may be attached to your annuity contract.  This will of course add up your policy cost but the benefits may be worth the extra expense. The rider may be included in the plan in lieu of the basic death benefit provision or you may choose to have them both in your policy.

Step-up options are available in some death benefit riders.  The step-up option guarantees a monthly or annual increase in the cash value of your investment.  If your policy has this option, the policy provider computes for the estimated value of your investment either monthly or on policy anniversary dates.  The highest of these recorded values may be used as the death benefit amount.  Most standard annuities pay only the basic death benefit and do not allow the transfer of gains to heirs.  The step-up feature may be a way for you to take advantage of market gains that you can pass on to your family.

Another death benefit rider option available for fixed annuities is one that guarantees to pay your heirs the remaining unpaid balance of the contract.  For example, if you purchased an annuity that is supposed to pay you a fixed amount annually for 20 years and you die after only receiving only 11 annual payouts, your beneficiaries are entitled to receive the remaining 9 annual payments.  This type of death benefit rider is usually more costly than the others.

Annuity riders exist mainly to meet specific requirements of buyers that are not normally included in standard policies or contracts. These are also intended to lessen the relatively higher risks associated with variable investment plans.  These riders are flexible and may cover anything that the buyer and the provider may agree on.

As all policy rider benefits will cost additional money, be careful in selecting which ones to include in your plans.  Get only those that you absolutely need.  Ask your insurance service provider if such riders will cost less if included in the contract or if bought separately on a different policy.  It is important that you also consider if the additional benefits will be worth more than the cost you will incur to purchase them. 

Riders may not be available on every annuity contract and riders offered and price may vary by company.  Underwriting requirements may apply.