Guaranteed Minimum Withdrawal Benefit

Delia Marchetti purchases a deferred variable annuity and pays an additional annual charge for a GUARANTEED MINIMUM WITHDRAWAL BENEFIT rider. What does that rider give her?

1. A.A waiver of the contract's surrender charges in any year in which the separate account declines in value.Wrong. Surrender charge waivers are a different contract feature and are typically tied to events such as death, disability or nursing home confinement.
2. B.A contractual floor on the amount she may withdraw each year for a stated period, regardless of separate account performance, in exchange for an additional charge.Correct. A guaranteed minimum withdrawal benefit protects the withdrawal stream, backed by the insurer's general account.
3. C.A guarantee that the subaccounts within the separate account will earn at least the contract's assumed interest rate.Wrong. No rider guarantees separate account investment performance, and the assumed interest rate is a payout-phase benchmark, not a floor on returns.
4. D.An increase in the death benefit equal to the cumulative withdrawals she has taken.Wrong. Withdrawals generally REDUCE the death benefit. This describes no rider that exists.

Why: A guaranteed minimum withdrawal benefit is a living benefit rider. For an extra annual charge, the insurer contractually guarantees that the owner may withdraw at least a specified amount each year for a stated number of years, or in some designs for life, even if poor separate account performance would otherwise have exhausted the contract value. The guarantee is an obligation of the insurer's general account, so it depends on the insurer's claims-paying ability. Two practical points: the rider charge reduces net return, and withdrawing more than the guaranteed amount in a year can reduce or forfeit the guarantee.

Silverbrook Securities prepares a retail brochure for a deferred variable annuity that its representatives sell in the lobby of an affiliated bank. Which statement in the brochure would COMPLY with FINRA's content standards?

1. A.The guaranteed minimum death benefit makes this a risk-free way to participate in the stock marketA death benefit does not eliminate separate account investment risk to the contract owner.
2. B.Contract guarantees are subject to the claims-paying ability of the issuing insurance company, and the annuity is not a bank deposit and is not FDIC insuredCorrect. This is the required framing for an insurance guarantee and for a product sold on bank premises.
3. C.The separate account's ten-year record provides a reliable estimate of the returns you can expectPresenting past performance as predictive is prohibited.
4. D.Because the contract is offered through our bank affiliate, your investment is federally insuredAnnuities are never FDIC insured, regardless of where they are sold.

Why: Variable annuity communications must not blur the line between an insurance company promise and a government or bank guarantee. Contract guarantees, including death benefits and living benefit riders, depend entirely on the claims-paying ability of the issuing insurer, and a product sold on bank premises must be clearly identified as not a deposit, not bank guaranteed and not FDIC insured. Communications also may not present a guaranteed minimum death benefit as removing investment risk from the separate account, and past separate account performance may never be presented as predictive.