The annuity industry’s embrace of guaranteed living benefits has been singularly responsible for the sales growth that annuities have had in recent years.
Now, attention is turning to the potential design and appeal of such vehicles for use within life insurance contracts.
Such vehicles offer significant value with their ability to limit annuity holders’ exposure to down investment performance. Different vehicles can accomplish this, including guaranteed lifetime (minimum) income benefits, the focus here.
Often referred to as GLIBs or GMIBs (the acronym used here), these products create a twist on the annuitization concept.
Ordinarily in annuitization, the annuity contract holder takes the cash value and uses it to buy monthly income at some purchase rate. The purchase rate stated in annuity contracts generally is quite conservative so that at time of “normal” annuitization the annuity holder will also examine the then (possibly/probably) more favorable “current purchase rate” and use it to secure more income.
With GMIBs, a “Benefit Base” is used instead of the account value. This benefit base grows no less slowly than the account value. In fact, it can grow as fast as 7% or so annually for a number of years. Consequently, the amount available to annuitize can be considerably greater than the account value.
Single premium annuities and single premium life contracts are relatively similar, aside from the death benefit level and the taxation of such death benefits.