The stock market has been volatile for the past three years, and there’s a good chance that your variable annuity has taken a hit as well. But the good news is that your annuity’s beneficiaries might receive some welcome protection during these challenging times.

Many investors purchased variable annuities because of their professionally managed portfolios, income tax advantages, and flexible payout options. One point that is often forgotten though is the “guaranteed death benefit.” This term, however, can mean different things to different annuity companies. To some firms it is just as basic as paying your heirs no less than the original investment amount less withdrawals, even if the markets have declined. To others it is a bit more complex, so it is important to understand what you own.  (Note: the guarantee is based on the claims paying ability of the insurance company).

Some of the more common death benefits we have seen in various annuity contracts are:

Stepped-Up Benefit

This provides for an increase each year above the original investment. For instance this could be 5% annually until age 80.

Earnings Benefit

The original investment plus a set percentage, for instance 30% to 40%, is given to your heirs.

Plus Percentage Option Benefit

For an extra cost you can add a preset percentage, for example 15%, to the total gains in your account as a way to increase the benefits for your heirs.

Maximum Anniversary Value Benefit

Your heirs would receive the highest value your account has reached on any previous contract anniversary date. Some companies will guarantee that your beneficiaries will not get less than a 5% rate of return on your investment.