Many people are familiar with the concept of riders and how a rider pertains to homeowner’s insurance. For example, if a homeowner possesses valuable art investments, the homeowner may elect to purchase an insurance rider in order to gain extra coverage beyond a standard policy, just to protect their art investment. An annuity rider is similar, in that it can be purchased by the annuity holder and then be attached to an annuity. Whereas riders on insurance policies protect and insure property. annuity riders protect principal and income.
Annuity riders attached to variable annuities are chosen in order to minimize financial loss. Variable annuities, as the name implies, vary. They are subject to fluctuations in the market, and some variable annuity riders protect the principal, while others, called downside riders, limit the owner’s amount of loss due to market fluctuations. An annuity can be tied to a given market, and if the market loses, the variable annuity rider limits the loss to a standard, pre-chosen percentage. However, such riders usually have an upside limit as well. In other words, they also limit the amount an annuity can be credited, should the market increase instead of decrease.
Annuity riders on fixed annuities are designed to guarantee the policyholder a fixed, specified dollar amount for a specific period of time. Such a rider protects the annuity holder by ensuring that the holder will receive guaranteed distributions in a certain dollar amount and thus the rider protects the annuity owner’s income.
The most common type of annuity rider is the income rider. One popular type of income rider is the guaranteed income rider. This rider is attached to an annuity in order to provide the purchaser with a secure retirement. Usually the contract involves a single, or lump-sum premium, in exchange for which the payments are guaranteed on a monthly, quarterly or yearly basis. Withdrawal benefits provide options for withdrawing sums and percentages of growth on investments. Some annuities are available with certain benefits already attached, while others allow the attachment of this rider based on the annuity buyer’s preference.
Another often seen annuity rider is a death benefit. If the policy owner dies, the person selected as a beneficiary will receive either all of the money in the account, or some guaranteed minimum (such as all purchase payments minus prior withdrawals).
A return of premium rider guarantees that the annuity owner will receive a return of at least the initial amount paid as the premium. The withdrawals can be structured in any number of ways, but the most important feature is that under no circumstances will he or she be paid less than the amount invested.
Annuity riders can be a valuable feature to add when making an annuity purchase. The rider can be tailored to the specific needs of a given purchaser. It is important to know the options available, as well as the possible advantages and disadvantages of any given annuity rider. The annuity purchaser must choose the annuity that best fits his or her future goals and expectations.
