In their most basic sense, riders are a type of “amendment” that can be added to an annuity (as well as other types of insurance products) that can either expand upon the product’s benefits or even add additional perks.
While some riders may be included at no additional cost, typically there will be an added premium charge if you opt to add certain riders to an annuity…and because of that additional premium outlay, it could have an impact on the overall return that you attain.
Types of Annuity Riders and How They Work
Depending on the type of annuity you are considering, there may be a multitude of options available. For instance, some riders can help you to ensure that you’ll receive guaranteed income for life, while others can assure your heirs that, even if you pass away, they will receive at least some amount of payout from the annuity.
Some of the common annuity riders that are available today can include:
- Income Riders – There are actually several different types of annuity income riders. These can include riders that provide you with guaranteed lifetime income benefits, and/or with guaranteed withdrawal benefits.
- Death Benefit Rider – A potential drawback to purchasing an annuity can be the risk that the annuitant will pass away before receiving some or all of their principal back. But, with a death benefit rider, a named beneficiary (or multiple beneficiaries) will receive the remaining amount of the annuity’s premium(s), and oftentimes also a specified amount of interest (depending on the annuity).
- Return of Premium Rider – There are some annuity purchasers who may opt for a return of premium rider. With this option, a named beneficiary will be guaranteed to receive back the remainder of the annuity’s paid-in premium amount.
- Cost of Living / Inflation Rider – Because many people use annuities as a source of retirement income, it can be important to have the payout increase over time so as to keep pace with inflation, and in turn, ensure that you won’t lose future purchasing power. With a cost of living / inflation rider, the amount of monthly income that is paid out from the annuity will typically increase by a certain percentage every year or on a regular basis.
- Long-Term Care Rider – A long-term care rider may be offered as a benefit with fixed deferred annuity contracts. Here, if you move into a skilled nursing home facility, the rider will provide you with an additional sum of income in order to help with paying the cost of care. In some cases, the long-term care rider will simply increase the amount of the monthly income payment to the recipient. In others, it may allow the annuity owner surrender penalty-free access to a portion of the annuity’s premium – possibly even up to 100 percent.
How to Determine Whether or Not an Annuity Rider is Right for You
Annuities can be complicated products. But they don’t necessarily have to be. By having an expert to guide you through the process of determining whether or not an annuity is right for you – and how you can “customize” an annuity using riders to fit better with your specific objectives – you can better ensure that you’re headed in the right direction…before you make a big-time financial commitment.
At Annuity Gator, we know annuities – and we are here to educate you about the benefits and the potential pitfalls of adding an annuity to your financial plan.
Want to learn more about whether or not an annuity will fit in with your short- and long-term financial objectives? Just contact us and set up a time to talk with one of our annuity research specialists.