Protection For Your Family
In "Down" Markets
One vital but often overlooked benefit of investing in a Variable Annuity is
the "guaranteed death benefit." While the name may remind you of
life insurance, it's not. In fact, there's no health requirement to qualify
for; it's simply another benefit included in a Variable Annuity.
Here's how it works: With most plans, if you die before age 75, your
beneficiary receives either your current contract value or your original
investment amount (less any withdrawals you've made), whichever is
greater. So you'll never pass on to your heirs less than you originally
invested.. Guaranteed. That sounds good so far.
And now let's say it's five years later, and your death benefit is still your
original investment amount (or of course, your current account value). For
example, you originally invested $50,000 and say your account has grown to
$150,000. So if you died your heirs would get $150,000.
But did you know you can lock in that $150,000 account value, raise your
death benefit and minimize the effect of a potential market correction?
How? By rolling your existing Variable Annuity funds into a new Variable
Annuity. That way you "lock in" your gains, so that $150,000 is
now your original investment amount in the new annuity and your beneficiaries
are completely protected from declining markets.
You'll first want to consider how this strategy is affected by any surrender
fees in your existing annuity. You may decide that the benefits of locking
in a substantial gain justify this charge. For instance, if you were to
apply this strategy in the fifth year of a six year plan - as in our example -
your charge for starting a new variable annuity could be as little as 1% of your
original investment amount. So you could incur a small charge to lock in a
a guaranteed gain, or you could wait until all surrender charges are gone and do
it then. It's your choice.
Your new Variable Annuity will have a new set of back-end surrender charges
if you have to cash it out early. What's important to remember is that
these charges only apply if you have to cash out early and not to the higher
death benefit that you just guaranteed to your beneficiaries.
In addition, some of the newest and most consumer-oriented Variable Annuities
on the market today offer investors an automatic step-up in the
guaranteed death benefit. These exciting new features provide an
additional layer of protection for your loved ones.
Some of the variations on this idea include a death benefit guarantee based
on our original investment (less any withdrawals) plus a minimum rate of
interest (i.e. 5% annually) up to twice the amount invested, or up to age
80. Another version locks in the guaranteed death benefit every 7 years,
based on the account value on the seventh anniversary (less any withdrawals made
afterwards), or the original investment amount (less withdrawals), or the current
account value, whichever is greater!
So what you have is a great way to get the upside potential of investing in
securities while protecting your beneficiaries from the down side of a declining
market! Greater benefit... and one that investors rarely know about!
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