A Lesson in Annuity Riders: GMIB vs. GWB

Choosing between a Guaranteed Monthly Income Benefit (GMIB) and a Guaranteed Withdrawal Benefit (GWB) rider can be a crucial decision in developing an annuity contract with your client. As it can dramatically impact the monetary benefits your client will receive, it is imperative to be knowledgeable about the differences between these two riders, and effectively communicate those difference so they are understood by your client.

With a GWB, your client is guaranteed a percentage of their original investment in the form of an income payment (called a “withdrawal benefit”) for the rest of their lives. Since the percentage is based on the amount of money invested, the market does not play a significant factor in income payments.

GMIB riders are slightly more complex. For instance, if a client invests $100,000, they will have a minimum guarantee of $5,000 in income per year. However, with a GMIB rider, if the market value were to fall to zero, the original investment will likely be annuitized over the client’s life expectancy, plus a 10-year certainty, meaning the original investment will be returned in the form of monthly payments. If the client dies only three years into the payment cycle, the benefits will likely be paid to a family member for another seven years. However, should the client die 11 years into the cycle, payments will cease entirely.