Annuity Riders & Contract Provisions

In addition to a variety of annuity types, you can choose from a long list of contract additions, known as riders, that may help you ensure that your annuity contract is suited to your financial requirements, your comfort with risks and even your medical condition.

For example, you might want the option of leaving all or part of your annuity contract to a selected beneficiary. Or you might want your annuity payout to increase with inflation. Other options would provide extra income in the event that you require long-term health care.

Many of these riders are designed to offset some of the disadvantages you may see in owning an annuity. But they add to the complexity and the cost. This can make annuities seem overwhelming. Understanding your options can help you decide what’s best for you.

You should exercise caution when choosing annuity riders because these additional features almost always come at a cost. That cost can be significant and recurring, and will likely reduce the amount of income you receive from your annuity in retirement. The more riders on your contract, the higher your costs and the lower the amount of your income stream.

Riders can be expensive, adding as much as 1 percent or more to the annual cost of the annuity. The actual percentage will depend on several variables, including the provisions of the rider and the company that provides it. Make sure you have a clear understanding of the ongoing costs of any riders or contract features you consider adding to your annuity.

To ensure that you are clear about any potential costs, write down your understanding of the contract and the costs and ask your agent to review it with you and sign what you both agree to.

The main categories of annuity riders are living and death benefits. Living benefits refer to income received by the original annuity purchaser. Death benefits refer to funds relayed to the estate or beneficiaries.

These are typically provided with variable annuity and indexed annuity contracts to guarantee the level of benefits received by the purchaser, no matter how the annuity’s investment portfolio or index performs. The point of this is to offset the risks inherent in types of annuities in which the payout amounts can rise or fall depending on these portfolios or indexes. According to LIMRA, sales of guaranteed living benefit riders totaled $10.4 billion in the first quarter of 2018 alone. When variable annuities are purchased through brokers and dealers, 85 percent of purchasers elect to add one of these riders.

Deferred annuity contracts will often include guaranteed minimum death benefits. This benefit comes into play if the annuity owner dies during the accumulation phase. If this happens, the guaranteed minimum death benefit rider may provide for a new annuitant to be named.

A vast array of annuity riders can be added to tailor your contract to your needs, and your provider may offer some that are not included here. Most riders address health and financial needs.

You may also want to include a crisis waiver in your contract. These waivers allow for early withdrawals with no surrender charges for certain qualifying life events. Like riders, they let buyers customize their contracts and optimize their benefits.

Consider the following riders when deciding which provisions you would like included in your annuity contract.