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Many people are familiar with the concept of riders and how a rider pertains to homeowners’ insurance. For example, suppose a homeowner possesses valuable art investments. In that case, the homeowner may elect to purchase an insurance rider to gain extra coverage beyond a standard policy 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 ensure the property.
Annuity riders protect principal and income.
Annuity riders on fixed and fixed indexed 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 particular dollar amount, and thus the rider protects the annuity owner’s income.
The most common type of annuity rider is the income rider. One favorite type of income rider is the guaranteed income rider. This rider is attached to an annuity 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 monthly, quarterly, or yearly. 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 an essential feature is that under no circumstances will the annuitant 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 essential to know the options available and the possible advantages and disadvantages of any given annuity rider. The annuity purchaser must choose the annuity that best fits their future goals and expectations.
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