Step-Up (Death Benefit)

What is Step-Up (Death Benefit)?

A step-up on an annuity death benefit is a feature that periodically locks in increases in the account value, ensuring beneficiaries receive at least the highest value the contract has reached – even if the account later declines. Step-ups are most common on variable annuities and fixed index annuities where the account value can fluctuate.

How a Step-Up Works

On a typical step-up death benefit, the carrier evaluates the account value annually (or on each contract anniversary) and locks in any gains. If the account value reaches $150,000 in year 5 and later declines to $130,000 by year 7, the death benefit “stepped up” to $150,000 and stays there even though the current account value is lower. Some step-ups continue annually until a stated age (often 80 or 85); others step up only at specific intervals (every 5 years, for example).

Common Step-Up Variations

• Annual step-up: Locks in the highest year-end value each year
• Anniversary step-up: Same as annual but tied to contract anniversary
• 5-year step-up: Resets to the higher of current value or original value plus interest every 5 years
• Roll-up step-up: Death benefit grows at a guaranteed rate plus locks in gains

Cost and When It Matters

Step-up features typically add 0.20% to 0.50% in annual contract charges. The benefit only matters if the annuitant dies during a market downturn after a previous market high – otherwise the current account value is the death benefit. Step-ups are most valuable for older buyers (75+) where market timing risk on death is meaningfully higher.

Frequently Asked Questions