RILAs and variable annuities are securities as well as insurance contracts, which means you can lose money in them. This page explains how each one works and how it compares to the fixed products MAS sells, so you can tell when one is the right tool and when it is not.
A fixed index annuity never credits less than zero. A RILA lets you take part of a loss in exchange for more upside.A variable annuity hands you the full market, up and down, inside a tax-deferred wrapper with optional guarantees bolted on. Those three sentences are most of what separates the products.
MAS does not sell RILAs or variable annuities; both require a securities license that MAS does not hold. We explain them here because people who come to us for a fixed annuity are often comparing against one, and the comparison should be fair.
Usually the wrong answer when
A RILA is the wrong product for money you cannot afford to see fall, and a variable annuity is the wrong product for a buyer who would be better served by a low-cost brokerage account and a separate fixed annuity for the guaranteed piece. Both are also the wrong products if the person selling them cannot explain the fee table from the Prospectus without reading it.
A registered index-linked annuity sits between a fixed index annuity and a variable annuity. Like an FIA, it credits index-linked interest with a cap or participation rate.
Unlike an FIA, it can post a negative return, and the buffer or floor is what limits how negative. The terms below are the ones that decide your result.
What is a RILA and how is it different from a fixed index annuity?
DefinitionA registered index-linked annuity (RILA) is a deferred annuity, registered with the SEC as a security, that credits returns based on an index and shares part of any index loss with you, usually through a buffer or a floor, in exchange for higher caps than a fixed index annuity offers.
You allocate premium to one or more index segments, each with a Segment term, a protection level (Buffer or RILA floor) and an upside limit (cap or participation rate). At the end of the term the carrier measures the index, applies the protection to any loss and the limit to any gain, and credits the result. Then a new segment begins at new rates.
The carrier can offer more upside than a Fixed index annuity because it is not paying for a 0% floor. You are insuring part of the downside yourself, and the money you save on that insurance buys a higher cap.
- Also called: buffered annuity, structured annuity, index-linked variable annuity.
- Sold by: securities-licensed representatives with a Prospectus. See Securities licensing.
- Typical terms: one-, three- and six-year segments inside a six- to seven-year surrender period.
Illustrative
$100,000 in a one-year segment with a 10% buffer and an 18% cap. Index up 25%: you are credited 18%, or $18,000.
Index down 6%: the buffer absorbs it, you are credited 0%. Index down 22%: the buffer absorbs the first 10%, you lose 12%, or $12,000.
Watch for
Brochures lead with the cap. The number that matters is the loss you keep after the buffer or floor, in the worst year you can imagine, on money you were counting on.
If that number is unacceptable, the higher cap does not fix it. See FIA vs RILA.
Related: Buffer · RILA floor · RILA cap and participation · Fixed index annuity · FIA vs RILA
How does a RILA buffer protect me?
DefinitionA buffer is the first slice of an index loss, typically 10%, 15% or 20%, that the carrier absorbs; you lose only the part of the decline that exceeds the buffer.
A 10% buffer means the carrier takes the first 10 percentage points of any loss and you take everything past that. In a modest down year you lose nothing. In a severe down year you lose most of the decline, because the buffer is a fixed size and the loss is not.
Buffers protect well against ordinary corrections and poorly against crashes. That is the opposite of a RILA floor, which caps your loss at a stated amount no matter how far the index falls. The table shows both on the same index results.
Larger buffers come with lower caps, because the carrier is insuring more of the loss. A 20% buffer on a one-year segment might carry a cap of 12% where a 10% buffer carries 18%.
Illustrative
$200,000 in a one-year segment with a 15% buffer. The index falls 23%.
The carrier absorbs 15 points; you lose 8%, or $16,000. The same money in an FIA with a 0% floor would have lost nothing and earned nothing.
Watch for
A buffer is not a floor. Sellers sometimes describe a 10% buffer as “protection against a 10% loss,” which is true and incomplete: it is also no protection against the eleventh point onward. Ask what happens at down 30% and down 40%, and decide with that answer in front of you.
Related: RILA floor · RILA · RILA cap and participation · 0% floor · Segment term
What is the difference between a RILA floor and a buffer?
DefinitionA RILA floor is the maximum loss you can take in a segment, typically minus 10% or minus 20%; you absorb losses down to the floor and the carrier absorbs everything beyond it.
With a minus 10% floor, you take the first 10 points of any loss and the carrier takes the rest. A 4% decline costs you 4%.
A 35% decline costs you 10%. Your worst case is known in advance, which is the floor’s whole appeal.
The trade-off runs the other way from a Buffer: floors cost you in ordinary down years and save you in crashes. Carriers price floors with lower caps than buffers of the same size, because a floor insures the tail of the distribution where losses are largest.
- Floor: you lose first, carrier covers the extreme.
- Buffer: carrier loses first, you cover the extreme.
- FIA: a 0% floor; the carrier covers all of it. See 0% floor.
Illustrative
$100,000 in a one-year segment with a minus 10% floor and a 13% cap. Index up 20%: credited 13%.
Index down 6%: credited -6%, or a $6,000 loss. Index down 40%: credited -10%, a $10,000 loss, and the carrier eats the other 30 points.
Watch for
A minus 10% floor still means a 10% loss, and many buyers hear “floor” and think “cannot lose.” If a 10% loss on this money would change your plans, the product with the right floor is a fixed index annuity, where the floor is zero. See FIA vs RILA.
Related: Buffer · RILA · 0% floor · RILA cap and participation · Fixed index annuity
Why are RILA caps so much higher than FIA caps?
DefinitionA RILA cap is the maximum index gain credited in a segment, and a participation rate is the percentage of the gain credited; both run higher than on a fixed index annuity because the buyer, not the carrier, is absorbing part of the downside.
The mechanics match the FIA versions: see Cap rate and Participation rate. A one-year segment with an 18% cap credits the index gain up to 18% and no more. A segment with a 110% participation rate and no cap credits 1.1 times the index gain, whatever it is.
The difference is the budget. An FIA spends its Options budget buying full downside protection and has little left for upside. A RILA with a 10% buffer spends far less on protection and puts the savings into a higher cap or an uncapped participation rate.
- Caps rise with: smaller buffers, shallower floors, longer segment terms.
- Caps fall with: larger buffers, deeper floors, low interest rates.
- Renewals: like an FIA, the cap resets at each new segment and can fall.
Illustrative
Same index, same year, index up 14%. FIA with a 0% floor and 8% cap: credited 8%.
RILA with a 10% buffer and 18% cap: credited 14%. The RILA buyer earned 6 points more and in exchange took on every loss beyond 10% that year.
Watch for
Compare caps only at the same protection level. An 18% RILA cap next to an 8% FIA cap is not evidence the RILA is better; it is the price of the protection the RILA buyer gave up. The useful question is whether the extra upside is worth the loss you would carry in a bad year.
Related: Cap rate · Participation rate · Buffer · RILA floor · Options budget
What is a step rate or trigger rate on a RILA?
DefinitionA step rate (also called a trigger rate or performance trigger) credits a fixed, stated return whenever the index finishes a segment flat or up by any amount, with no credit for how far up it went.
If the step rate is 9% and the index finishes the segment at +0.5%, you are credited 9%. If it finishes at +30%, you are credited 9%.
If it finishes down, the Buffer or RILA floor applies as usual and you may take a loss. It is the RILA cousin of the FIA Performance trigger.
Step rates suit buyers who expect modest, positive years and want a known number rather than a bet on a big gain. They give up the top of a strong year for certainty in a flat one.
Illustrative
$100,000, one-year segment, 9% step rate, 10% buffer. Index +1%: credited $9,000.
Index +25%: credited $9,000. Index -14%: buffer absorbs 10 points, you lose 4%, or $4,000.
Watch for
A step rate turns a small index gain into a large credit, which is attractive, and it turns a large index gain into the same credit, which is not. The protection side is unchanged: a step rate does nothing about losses. Read it as “capped at the step rate, buffered as stated.”
Related: Performance trigger · RILA cap and participation · Buffer · Segment term
How can a RILA pay me a gain when the index goes down?
DefinitionA dual-direction RILA credits a positive return equal to the size of an index loss, as long as the loss stays within the buffer; a decline larger than the buffer is a loss to you beyond the buffer, as usual.
With a 10% dual-direction buffer, an index decline of 7% is credited as a gain of 7%. A decline of exactly 10% is credited as a gain of 10%.
A decline of 16% is a loss of 6%, because the buffer absorbed the first 10 points and the positive conversion only applies inside the buffer. Gains on the upside are credited up to the segment cap as usual.
The carrier pays for the feature with a lower cap than a standard buffer segment. The FIA version of the same idea, where there is no loss possible, is explained at Dual direction on the FIA page.
Illustrative
$100,000, one-year segment, 10% dual-direction buffer, 12% cap. Index -7%: credited +7%, or $7,000. Index -10%: credited +10%.
Index -16%: credited -6%, a $6,000 loss. Index +20%: credited +12%.
Watch for
The feature shines in mild down years and does nothing in bad ones, which is exactly when you would most want help. Do not let the “gain when the market falls” line hide the fact that a 25% decline still costs you 15%. See Buffer.
Related: Dual direction · Buffer · RILA cap and participation · RILA · Segment term
What is a segment term and why does it matter?
DefinitionA segment term is the period, typically one, three or six years, over which a RILA measures the index and applies the buffer or floor and the cap; the result is only known and credited at the end of the term.
Each segment is a separate measurement period with its own start value, protection level and cap. A one-year segment resets every anniversary. A six-year segment measures the index from the day you start to the day it ends, and nothing in between counts.
Longer segments usually carry larger buffers and higher caps, because the odds of an index finishing six years below its start are lower than for one year. They also lock the money in that segment, since leaving early means accepting the Interim value rather than the stated terms. The FIA equivalent is the Crediting term.
- Short segments: frequent resets, lower caps, more flexibility.
- Long segments: higher caps and buffers, result unknown for years, interim value risk if you leave.
Watch for
A six-year segment inside a six-year surrender period means the terms you were shown only apply if you stay the full six years and the index is measured exactly on the end date. Any withdrawal, including a death claim, before that date is settled at interim value. Make sure the segment length fits the money.
Related: Interim value · Crediting term · Buffer · RILA cap and participation · Surrender charge schedule
What is interim value and why is it lower than I expected?
DefinitionInterim value is the carrier’s calculated value of a RILA segment before the segment ends, based on the market value of the options and bonds backing it; withdrawals, surrenders and death claims during a segment are paid at interim value, not the stated buffer and cap terms.
The buffer and cap are promises about the end of the segment. If you take money out before then, the carrier cannot apply them, so it values your segment the way it values its own hedges: the current price of the options, adjusted for interest rates and time remaining. That number can be lower than the index alone would suggest, and it can be lower than your starting value even when the index is up.
The FIA version is the Interim strategy value, but the stakes are higher on a RILA because the buffer can be worth less mid-term than at the end.
Illustrative
You are two years into a six-year segment with a 20% buffer. The index is down 12%. At the end of the segment that would be a 0% result.
Today the interim value shows a 9% loss, because the buffer’s protection is only fully priced in at maturity. A withdrawal now locks that in.
Watch for
Interim value is where RILA buyers get hurt without doing anything wrong: a free withdrawal, a required distribution or a death in the middle of a long segment is settled at a number the brochure never showed. Match segment length to the money’s horizon and keep anything you might need in a one-year segment or outside the product.
Related: Segment term · Interim strategy value · Buffer · Free withdrawal provision · Death benefit
Why is a RILA registered with the SEC when a fixed index annuity is not?
DefinitionSecurities registration means a product is filed with the U.S. Securities and Exchange Commission and sold with a prospectus because the buyer bears investment risk; RILAs and variable annuities are registered, fixed and fixed index annuities are not.
The line is who can lose money. A Fixed index annuity guarantees principal and a 0% floor, so it is regulated as insurance by the states alone.
A RILA can lose value, so it is both an insurance contract regulated by the states and a security regulated by the SEC and FINRA.
Registration brings a Prospectus, ongoing disclosure, and the requirement that the person selling it hold a securities license in addition to an insurance license. See Securities licensing. It does not make the product safer; it makes the risk disclosed.
- Registered: RILA, variable annuity.
- Not registered: fixed annuity, MYGA, fixed index annuity, SPIA, DIA.
Watch for
“SEC-registered” is sometimes said as if it were a seal of quality. It is a label that says “you can lose money in this.” The unregistered products are unregistered because you cannot. Read it that way, and see Insurance contract vs investment.
Related: Prospectus · Securities licensing · Insurance contract vs investment · RILA · Variable annuity
Do I really need to read the prospectus?
DefinitionA prospectus is the SEC-required disclosure document for a RILA or variable annuity, describing the product’s features, risks, fees and the carrier’s rights to change terms; it is the legal description of what you are buying and overrides anything in the brochure.
Yes, or at least the parts that matter. A prospectus for a registered annuity runs long, but a few sections do most of the work.
- Fee table: every charge, as a percentage, in one place. On a variable annuity this is where M&E charge, Administrative fee, Fund expenses and rider charges add up.
- Risk factors: the carrier’s own list of what can go wrong, including Interim value on a RILA.
- Rate-setting and changes: the carrier’s right to lower caps, raise fees or close segments.
- Surrender charges and withdrawals: the schedule, and how withdrawals affect any guarantees.
Registered products also publish a shorter summary prospectus, which many carriers deliver in place of the full document. The full document is available on request and on the SEC’s website.
Watch for
If the illustration and the prospectus disagree, the prospectus wins and the illustration was wrong. Before buying, find the fee table and the section on the carrier’s right to change rates, and read both with the person selling the product in the room.
Related: Securities registration · Disclosure documents · M&E charge · Fund expenses · Interim value
Explainer: buffer vs floor on the same index return
Illustrative. Enter an index return and the terms of two RILA segments: the buffer segment absorbs the first part of a loss, the floor segment caps your loss at the floor. The same cap is applied to both for simplicity; in practice a floor segment usually carries a lower cap.
On $100,000. The FIA column uses the same cap only to show the shape of a 0% floor; real FIA caps are lower than RILA caps at the same point in time. Illustrative, not a quote.
A variable annuity is a tax-deferred account of mutual-fund-like subaccounts with an insurance wrapper around it. The wrapper costs money every year, and in exchange it can carry guarantees that a brokerage account cannot. The four common living and death benefit guarantees, which go by their initials, are compared below and then explained one at a time.
What is a variable annuity?
DefinitionA variable annuity is a deferred annuity, registered as a security, in which your premium is invested in subaccounts you choose and your account value rises and falls with them; the carrier guarantees nothing about the value unless you buy a rider that does.
Premium goes into a Separate account and is divided among Subaccounts, which are investment portfolios similar to mutual funds. Gains are tax-deferred until withdrawn. The insurance company charges an M&E charge and an Administrative fee for the wrapper, the subaccounts charge Fund expenses, and any guarantee you add charges its own fee.
Without riders, a variable annuity is a tax-deferred investment account with a surrender charge and a basic death benefit. With riders, it becomes a market-linked account with a guaranteed income floor or a guaranteed death benefit layered on top, backed by the carrier’s General account.
- Upside: full market participation, no cap.
- Downside: full market loss, unless a rider guarantees a specific outcome.
- Cost: commonly 2% to 4% a year all-in with a living benefit rider.
Illustrative
$100,000 in a variable annuity, 60% stock and 40% bond subaccounts, total annual cost 3%. The subaccounts return 7%; your account grows about 4%.
They lose 15%; your account falls about 18%. A GMWB rider might still let you withdraw $5,000 a year regardless.
Watch for
The fees compound against you every year, in good markets and bad. A variable annuity has to earn its total cost before you earn anything, and that cost is often two or three times what a plain index fund charges.
The guarantees can be worth it; the wrapper alone usually is not. See Variable vs fixed index.
Related: Subaccounts · M&E charge · Share classes · GMWB · Variable vs fixed index
What are variable annuity subaccounts?
DefinitionSubaccounts are the investment options inside a variable annuity, each a professionally managed portfolio similar to a mutual fund, held in the insurer’s separate account and valued daily.
A typical contract offers dozens of subaccounts: stock funds by size and style, bond funds, balanced funds, and often a fixed account paying a declared rate. You choose an allocation, can usually change it a set number of times a year without charge, and your account value is the sum of your subaccount units times their daily prices.
Subaccounts are not the same as the retail mutual funds they resemble, even when they share a name and a manager. They have their own expense ratios, shown in the Prospectus as Fund expenses, and they are only available inside the annuity.
Watch for
Contracts with living benefit riders often restrict which subaccounts you may use or require a minimum bond allocation, because the carrier is guaranteeing the outcome and wants to limit its risk. The restriction is reasonable; just know that the growth illustrated on the unrestricted menu may not be available to you.
Related: Variable annuity · Separate account · Fund expenses · GMWB · Prospectus
What is the M&E charge on a variable annuity?
DefinitionThe mortality and expense (M&E) risk charge is the insurer’s annual fee for the insurance features of a variable annuity, typically 1% to 1.5% of account value, deducted daily from the subaccounts.
The charge pays the carrier for guaranteeing the basic death benefit, for the promise that annuity payout rates will not be worse than those in the contract, and for its general costs and profit. It is charged on the whole account value whether or not you ever use the insurance features.
M&E is the largest single wrapper cost and the one that makes a variable annuity more expensive than the same funds held directly. Combined with the Administrative fee and Fund expenses, the base contract often costs 2% or more before any optional rider is added.
Illustrative
$250,000 account, 1.25% M&E. That is $3,125 in year one, taken a little each day. Over ten years at a 6% gross return, the M&E alone costs roughly $50,000 in lost value, before administrative, fund and rider charges.
Watch for
M&E is quoted as a small percentage and paid on a large balance for a long time. Ask for the total expense in dollars for one year on your actual balance, then multiply by the years you expect to hold the contract.
That is the price of the wrapper. See Share classes for how it varies.
Related: Administrative fee · Fund expenses · Share classes · Variable annuity · Rider fee
What is the administrative fee on a variable annuity?
DefinitionThe administrative fee covers the insurer’s cost of recordkeeping and servicing the contract, charged either as a flat annual amount, commonly $25 to $30, or as a small percentage of account value, often 0.10% to 0.25%.
Some contracts charge both forms: a flat contract maintenance fee plus a percentage-based administrative charge. The flat fee is often waived above a stated account value, such as $50,000. The percentage version is deducted daily alongside the M&E charge and appears next to it in the Prospectus fee table.
On its own the administrative fee is minor. It matters as part of the total: M&E plus administrative plus Fund expenses plus riders is the number to compare across contracts, and to compare against a plain brokerage account.
Watch for
A low M&E paired with a high administrative percentage is the same cost under a different label. Add the wrapper charges together before comparing two variable annuities, and never compare one line item alone.
Related: M&E charge · Fund expenses · Share classes · Variable annuity
Do the subaccounts charge their own fees on top of the annuity fees?
DefinitionFund expenses are the annual operating costs of each subaccount, expressed as an expense ratio and deducted from the subaccount’s returns, charged in addition to the insurer’s M&E and administrative fees.
Each subaccount has its own management fee and operating costs, typically 0.5% to 1.5% a year depending on the type of fund. Index subaccounts sit at the low end; actively managed stock and international funds sit at the high end. The Prospectus lists the range and the exact figure for each option.
Fund expenses are not paid to the insurer; they go to the fund manager. They are the layer that makes a variable annuity’s total cost add up, because the insurer’s fees sit on top of them rather than replacing them.
Illustrative
M&E 1.25%, administrative 0.15%, subaccount average 0.90%, GMWB rider 1.10%. Total: 3.40% a year. On $200,000 that is $6,800 in the first year, which the subaccounts must earn before your account grows at all.
Watch for
Illustrations often show subaccount returns gross of fund expenses, or net of fund expenses but gross of the wrapper, and the footnote says which. Insist on a column that is net of everything. If the seller cannot produce one, build it yourself from the fee table.
Related: M&E charge · Administrative fee · Subaccounts · Prospectus · Rider fee
What do the share classes on a variable annuity mean?
DefinitionShare classes are different fee structures for the same variable annuity, labeled by letter, that trade a surrender charge against ongoing cost; the common ones are B, C, L and I (or advisory) shares.
The product is the same across classes. What differs is how and when you pay for it.
B shares pay the seller a Commission up front, recovered through the surrender charge if you leave early. C and L shares pay it through higher ongoing fees. I shares strip the commission out entirely and are sold in fee-based arrangements.
Watch for
A C share with no surrender charge sounds like freedom and costs the most over a long hold. An I share looks cheapest and adds an advisory fee on top that does not appear in the prospectus. Price the class for the number of years you actually expect to hold the contract, including every fee, before choosing.
Related: M&E charge · Commission · Fee-based annuities · Surrender charge · Variable annuity
What is a GMDB on a variable annuity?
DefinitionA guaranteed minimum death benefit (GMDB) promises that your beneficiaries receive at least a stated amount at your death, often the premiums paid or the highest anniversary value, even if the subaccounts have fallen below it.
Most variable annuities include a basic GMDB equal to premium less withdrawals, so a market loss at death is restored for the beneficiary. Optional enhanced versions lock in the highest contract anniversary value, or roll premium up at a stated rate, for an added annual fee. See Enhanced death benefit rider for the fixed-product version of the same idea.
The GMDB is a General account promise, paid by the carrier out of its own funds when the Subaccounts fall short. It is the only insurance feature in a plain variable annuity and part of what the M&E charge pays for.
Illustrative
$200,000 premium, no withdrawals. The owner dies when the account is worth $160,000.
The basic GMDB pays $200,000. With a highest-anniversary GMDB and a past anniversary value of $240,000, the beneficiary receives $240,000.
Watch for
The death benefit is for your heirs, not for you, and you pay for it every year you are alive. If leaving a specific amount is the goal, compare the enhanced GMDB fee against the cost of plain life insurance for the same amount. The insurance is often cheaper.
Related: GMWB · GMAB · Death benefit · Enhanced death benefit rider · Standard death benefit
How is a GMWB different from the income rider on a fixed index annuity?
DefinitionA guaranteed minimum withdrawal benefit (GMWB) is a variable annuity rider that lets you withdraw a stated percentage of a protected benefit base each year, often for life, even after the account value falls to zero; it is the variable annuity version of a lifetime income rider.
The rider creates a Benefit base separate from your account value. The base may grow by a stated Roll-up rate while you wait, or Step-up to the account value on anniversaries when the market has done well.
When you start withdrawals, the Payout percentage for your age is applied to the base, and the carrier promises that amount for life even if the account runs out. The lifetime version is often called a GLWB; see GLWB.
The mechanics are the same as an FIA Income rider. The difference is what is underneath: a variable annuity’s account value can fall with the market and be drained by fees, so the guarantee is more likely to be the thing you actually live on.
- Fee: commonly 1% to 1.5% of the benefit base, on top of all other contract costs.
- Allocation limits: the carrier usually restricts subaccount choices once the rider is on.
Illustrative
$300,000 premium, benefit base rolls up 6% simple for seven years to $426,000. Payout at 65 is 5%, or $21,300 a year for life. If the account value is only $250,000 at that point because of fees and markets, the income is still $21,300.
Watch for
The roll-up is not a return and the benefit base is not money you can take out. See Why you can’t withdraw the benefit base.
Compare the guaranteed income in dollars at your start age against an FIA income rider or a SPIA for the same premium. The variable version costs more and often guarantees less; the trade is the chance the subaccounts outrun it.
Related: Income rider · GLWB · Benefit base · Payout percentage · GMIB
What is a GMIB and why do I have to annuitize to use it?
DefinitionA guaranteed minimum income benefit (GMIB) is a variable annuity rider that guarantees you can convert a protected benefit base into lifetime income at contract-stated rates after a waiting period, typically ten years, but only by annuitizing.
Like a GMWB, the GMIB grows a Benefit base at a stated rate or by step-ups. The difference is how you collect. A GMWB pays withdrawals while you keep the contract; a GMIB requires you to annuitize, handing the carrier the contract in exchange for a fixed stream of payments at the rider’s guaranteed payout rates.
Those rider payout rates are usually set conservatively, so the GMIB only wins when the market has done badly enough that annuitizing the actual account value would pay less. The rider has become less common as GMWBs have taken over, but many older contracts still carry one.
Illustrative
Benefit base $400,000, account value $280,000 after ten years. Annuitizing the account value at current rates might pay $18,000 a year.
Annuitizing the benefit base at the GMIB’s guaranteed rates might pay $20,000. The rider adds $2,000 a year, for a fee paid every year for a decade.
Watch for
The waiting period and the requirement to annuitize mean many owners never use the GMIB they have paid for. If you hold one, have the carrier quote both options at the end of the waiting period and compare them in dollars. If the rider does not win, consider dropping it.
Related: GMWB · Annuitization · Benefit base · Income rider vs annuitization · GMAB
What is a GMAB?
DefinitionA guaranteed minimum accumulation benefit (GMAB) is a variable annuity rider that promises your account value will be at least a stated amount, usually your premium, on a specific future date, typically ten years from purchase; if the account is below that amount on the date, the carrier adds the difference.
The GMAB is the simplest of the four guarantees. You stay invested in the Subaccounts for the waiting period, and on the maturity date the carrier tops the account up to the guaranteed amount if needed. If the account is above it, nothing happens and you have paid the fee for a guarantee you did not use.
Most GMABs require you to hold the contract to the exact date, keep withdrawals to a minimum, and stay within an approved allocation. Some let you reset the guarantee to a higher account value, which restarts the waiting period.
Illustrative
$150,000 premium, ten-year GMAB at 100% of premium, 0.75% annual fee. Year ten account value is $135,000; the carrier adds $15,000. Had the account been $220,000, the rider would have paid nothing and cost roughly $11,000 to $14,000 in fees, depending on whether the fee is charged on premium or on the growing account, over the decade.
Watch for
A GMAB that guarantees return of premium after ten years is guaranteeing a 0% return over ten years, for an annual fee, with full market exposure in between. A Fixed index annuity guarantees the same floor every year with no fee, and a MYGA guarantees growth. Make sure you are paying for upside you actually want.
Related: GMDB · GMWB · Fixed index annuity · 0% floor · Variable vs fixed index
Why can my insurance agent sell a fixed index annuity but not a RILA?
DefinitionSecurities licensing is the FINRA registration and state securities registration a person must hold, in addition to a state insurance license, to sell RILAs, variable annuities or any other product in which the buyer can lose money in the market.
A state life insurance license is enough to sell fixed annuities, MYGAs, fixed index annuities, SPIAs and DIAs. Selling a RILA or a Variable annuity also requires securities registration, typically a FINRA Series 6 or Series 7 plus the state Series 63 (or the Series 66 together with a Series 7; a few states do not require the 63), and affiliation with a broker-dealer that supervises the sale.
The licensing follows the risk. If the product can lose value, it is a security, and the rules for selling securities apply: a Prospectus, a broker-dealer review, and FINRA suitability rules in addition to the state insurance rules. See agent vs broker vs registered representative for how the roles differ.
- Insurance license only: fixed, MYGA, FIA, SPIA, DIA.
- Insurance plus securities: RILA, variable annuity.
Watch for
A seller licensed for both can sell you either, and the compensation and supervision differ between the two sets of products. A seller licensed for insurance only cannot discuss a RILA or variable annuity as a recommendation.
MAS holds insurance licenses only, which is why this page is reference and not an offer. See Why MAS focuses on fixed products.
Related: Securities registration · Agent vs broker vs advisor · Independent broker vs captive agent · Why MAS focuses on fixed products · Suitability
My Annuity Store is a licensed insurance agency. This reference is general education, not a recommendation for any product or carrier, and it is not tax or legal advice. RILAs and variable annuities are securities; figures here are illustrative and not an offer. Read the prospectus before buying either. MAS does not give tax advice. Call 855-277-8088 or email info@myannuitystore.com with questions.
