What Enhanced Benefits Can Come with Annuities?

Arguably the greatest benefit that an annuity can bring to a portfolio is protection. But depending on the contract you get, the annuity may provide enhanced protection for you in different qualifying circumstances.

These enhanced benefits can protect you against a number of financial risks. Those risks can range from confined care in a nursing home facility to home-based care and death benefit protection.

Some contracts have these as built-in features. In other cases, most enhanced benefits come as insurance contract add-ons, or annuity riders. Many of these enhanced benefit riders come at an additional charge.

You should be sure of what that enhanced annuity benefit specifically gives you, what it doesn’t give you, how much it costs, and whether it truly makes sense for your situation before confirming any add-ons to your contract.

Even so, enhanced benefits can be a great supplement for the right financial situations. Here’s how different enhanced benefits for annuities might help your retirement security in various situations.

Enhanced Income for Nursing Home Care

If you are confined to nursing home care for at least 90 days, this enhanced benefit may be activated in many annuity contracts. Your regular income that you receive from your annuity may be doubled, or enhanced even more, depending on the annuity policy you have.

This enhanced benefit is to help you shoulder the often-costly long-term care services received in a nursing home. Many annuity contracts pay this enhanced income either for 60 months (5 years) or until the actual cash in your annuity runs to zero (and keep in mind that annual charge for the rider).

Then in many annuity contracts, your income will revert to its original amount that you were receiving beforehand. However, not all contracts are structured this way.

Check with your advisor if any annuities you are considering have this benefit and what they involve.

This type of annuity rider is ideal for those with health conditions that prevent them from being underwritten by a traditional life insurance policy or even long-term care insurance policy.

Enhanced Income for Home-Based Long-Term Care

For long-term care, there are certain metrics that companies monitor called “acts of daily living.” These acts include bathing, dressing yourself, toileting, and other self-care actions.

Say that you are unable to perform at least two of these actions yourself. Good news, some annuity contracts have enhanced benefits for home-based long-term care.

The situation must meet certain conditions so that you, the policyholder, are eligible for the enhanced income that the rider benefit will provide. Check the specific details of your contract and rider disclosure document for information on what is covered.

Just like with nursing home care enhanced benefits, this enhanced benefit can pay out enhanced income as well. Your income might increase by up to double what you were originally receiving.

But your enhanced income may cut off at 60 months or until your contract value runs to zero. Check your contract for details, including the potential length of benefit duration.

The enhanced benefits for nursing home and home health care may require underwriting in some cases. However, there are also riders available from some carriers that don’t require this.

Be sure to check with your financial advisor or agent to see what is necessary in order to qualify for these riders.

Enhanced Death Benefit Proceeds

While this benefit can be found in many variable annuities, it’s also part of some fixed index annuity contracts as well.

For illustrative purposes, let’s say that you have some money in a fixed index annuity. Over time, your money will earn interest and grow to a larger stockpile of savings. This stockpile is called your annuity accumulation value.

At the annuity owner’s death, some fixed index annuity contracts will pay heirs an enhanced death benefit that is in excess of 100 percent of what the accumulation value is at the time of death. This is in exchange for a rider fee that is charged against the accumulation value.

For example, some fixed index annuity contracts pay as much as 130 percent of the accumulation value as a death benefit, via this enhanced benefit.

In a variable annuity, one way that the enhanced death benefit is created by locking in gains when they are earned. That way the highest value of the annuity while it was in force is paid out as a death benefit.

For example,say you put $100,000 into a variable annuity and its value rises to $150,000 and then drops back to $125,000. Then your beneficiary will receive the high-water mark of $150,000.

Some contracts will only look at the values of the annuity on the policy anniversary date. Meanwhile, others use whatever day the variable annuity had the highest value.

Any withdrawals that you take from your annuity can also affect this benefit. So it’s important to keep that in mind. Be sure to ask your financial professional about the exact details of this enhanced benefit if it’s available in any annuities you might be considering.

Enhanced Withdrawal Benefit

This benefit is also known in the annuity market as a liquidity rider. This lets you go above and beyond the baseline liquidity that many annuity contracts permit. It allows you to make larger withdrawals from the contract without having to pay any kind of penalty.

That is, unless you are under age 59.5. In that case, the 10% early withdrawal penalty will still be charged, unless the withdrawal qualifies as an exception under IRS rules.

For example, one company has two annuity options with this benefit. One  annuity allows for 5% free withdrawals starting in the second year of the contract and has no annual fees. The other version allows the policyholder to withdraw up to 10% of the contract value each year without penalty.

In another case, one fixed index annuity allows for cumulative free withdrawals of up to 30%, as long as no withdrawals are taken for a certain period first.

There is one important thing to note here. Any withdrawals that are taken from an annuity that has one or more of these enhanced benefit riders can prevent the rider from paying out if it’s needed.

Talk with your financial professional about your situation. Ask them whether this applies to your annuity before opting to purchase one of these riders. Say you think that you will need to make substantial withdrawals within the next few years. In that case, buying the rider may not be a good idea.

How Can Enhanced Benefits Help Your Financial Well-Being?

Enhanced annuity benefits can do a world of good for the right situations. However, they need to make sense for your financial picture.

Work with an independent financial professional who guides in your best interest. Ask them about the pros, cons, and details of these enhanced benefit options.

If you are in poor health and can’t qualify for life or long-term care coverage, then this type of rider can be a real godsend. This is just one of many ways in which enhanced annuity benefits can bring financial peace of mind. Having this protection can bring a lot of comfort and more security to your financial well-being.

Just be sure that there is a good chance that you will need the enhanced protection that these riders provide before you choose one. Your financial professional can help you weigh the merits and make an informed decision.

What if you are looking for a financial professional to help guide you? For your convenience, assistance is just a click away at SafeMoney.com, where many financial professionals are ready to serve you.

Use our “Find a Financial Professional” section to connect with someone directly. You can talk to them about any annuity contracts you may be considering as well as about your overall financial situation. Should you need a personal referral, call us at 877.476.9723.