Riders Make Annuities Better

An annuity is a contract between an individual and an insurance company.

Annuities have a proven track record and can help you meet your retirement goals. They come in a variety of flavors and offer a lot of versatility, some of that versatility is accomplished through riders.

To beef up payout amounts, protect premiums, and provide some liquidity, companies offer riders to their annuities. These are simply amendments to an insurance contract that can either expand or restrict the policy’s benefits and also may exclude certain conditions from coverage.

Riders can increase an annuity’s flexibility and provide peace of mind. But they are not always free. Some of the available riders have costs associated with them. It is important to locate the rider costs in the contract and know exactly what you are paying for.

Below are seven common annuity riders that may be available to you and can help you navigate some of the pitfalls in owning an annuity:

• Guaranteed Lifetime Withdrawal Benefit Rider. Available with some variable as well as indexed annuities, this guarantees an income for life without having to convert to an immediate annuity during your payout phase. This is especially beneficial if your annuity has performed well — and continues to do so — because it lets you continue to realize gains while still receiving monthly payments. This rider also allows you to access any remaining premium during your payout phase, minus payments made and previous withdrawals.

• Nursing Home Riders/Long-Term Care Riders. This rider is typically offered with deferred annuities and is triggered by the need for long-term care. The insurance company will increase your payouts to help cover the cost of nursing home or home healthcare expenses. It could as much as double the monthly payments you receive or allow you greater access to your accumulated value, or a combination of both. The intent is to help ease the financial burden of the long-term care expenses.

• Cost-of-Living Riders/Inflation-Adjusted Riders. Typically offered with immediate annuities, this rider raises your monthly income to compensate for inflation. The income increases every year by a set percentage and is designed to offset the rate of inflation. So an income stream you turn on today won’t feel so measly in 10 or 15 years. But there’s a catch. To compensate for the inflated payments down the road, the payments in the first few years are often smaller than if you didn’t have this rider. That’s because it takes a few years for your yearly increase to catch up to where you would have started without the rider.

• Refund Riders. Available in immediate annuities, refund riders come in two varieties: cash refund and installment refund. Let’s say at the time of your death the total annuity payments you received are less than the amount you paid into your annuity. This rider says your beneficiary will receive the difference. A cash rider pays that beneficiary in one lump sum, and an installment refund rider provides payments made over time.

• Impaired Risk Rider / Medically Underwritten Rider. This rider is added to an immediate annuity when you have an illness that will reduce your life expectancy. Because an illness like diabetes means your life expectancy isn’t as long as someone without the disease, the insurance company pays you more every month.

• Disability, Unemployment, and Terminal Illness Riders. Typically available for deferred annuities, these add-ons cover those what if scenarios we all hope won’t happen. But, should you lose your job, be diagnosed with a terminal illness, or be disabled — this allows you to tap into either a portion or all of your premium without facing penalty fees.

• Commuted Payout Rider. Also for an immediate annuity, this rider allows you to withdraw a lump sum should the need arise. The amount is almost always a set maximum percentage of the premium paid — for instance, 5 or 10 percent — but it can be stated as a fixed dollar amount, too. There are usually time limits on this rider — for example, it may only be effective for the first 1 to 5 years of the annuity. The rider comes in many shapes and sizes, so ask for clear details about all associated costs, restrictions, etc., before tacking this on to your annuity.

You can find out more about Fixed, Indexed, and Variable Annuities, and the associated riders, in Crown Atlantic's new report, "The Annuity Primer: Get Guaranteed Income for Life." Go online to CrownAtlantic.com/Protect or call today 855-221-5546.

Joe Stark is the CEO of Crown Atlantic Insurance, LLC in Boca Raton, Fla. Stark is an insurance industry veteran with more than 25 years of experience. For more of his reports, Go Here Now.