A guaranteed payout annuity floor (GPAF) rider in a variable annuity guarantees what?
a) the owner can eventually annuitize a certain minimum guaranteed income base regardless of how poorly the owner’s investment choices perform
b)the owner can make withdrawals free of surrender charges if the owner needs long-term care
c)once payouts begin, no payment will ever be less than a specified percentage of the first payment
d) the owner will receive at least a return of principal, in a lump sum, after a specified waiting period
Depends. Mostly on the carrier and the contract. I deal with annuities all the times, so that’s the most accurate answer. Riders can be useful, sometimes useful, or completely worthless depending on the carrier and your situation.
In general, a guaranteed floor (say 3%) on a variable annuity is the minimal account value that will be in the contract if you choose to annuitize the contract. That’s not the account value or even surrender value, but the minimum annuitization value. Basically, the value that company will use to base your annuitized income on.
Although, some carriers on newer policy (think 2006/2007 introduction) the guaranteed minimum value/floor is actually minimum account value use for calculation of a systematic withdraw. This is different from an annuitization in that you can choose to stop the income stream and take the current surrender value and walk away.
Here’s the advice (with disclaimer: talk to a trusted and knowledgeable insurance agent/financial professional. Yeah, sometimes they’re tough to find because they’re captive agents and pushes products from their companies only. You’ll need to look for independent advisor that works with all firms.) In general, I hate doing variable annuity with those types of riders. Those riders eat into your growth and that’s what a variable annuity is for, else you would be looking at a fixed or fixed index annuity (FIA).
Some FIA carriers, those riders are part of the policy with minimal policy cost Why? Because they know the math, they have ran their models against historical data. Guess what… only one ten-year period 1964-1973 (I think that was the period) that rider would have come into effect. It’s like getting life insurance on a baby. Yes, there’s a probability of something happening, but the costs far out weights the (benefits x probability of event).
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