What is a Guaranteed Death Benefit?
A guaranteed death benefit refers to a benefit term that guarantees the beneficiary (as named in the contract) will receive a death benefit if the Annuitant passes away before the Annuity starts paying benefits.
Understanding Guaranteed Death Benefit
An annuitant can receive a guaranteed death benefit as a safety net in case the contract is still in its accumulation phase. The guaranteed death benefit ensures that annuitants’ estate or beneficiaries will receive at least a minimum amount even if the contract has not reached the point when it will start paying benefits. In certain cases, the contract terms may specify that the contract will instate a designated person as the new annuitant to take over the contract if an annuitant passes away during the accumulation period.
Although the guaranteed death benefit amount received varies between companies and contracts, the beneficiary is guaranteed the same amount as what was invested or the contract’s value on the latest policy anniversary statement. You can also change the structure of your death benefit payment. It can be paid in one lump sum or on an ongoing basis.
Guaranteed Death Benefit Details
This clause is common in life insurance coverage. A guaranteed death benefit is often offered as an optional extra benefit. This is where a rider is added to the primary policy to increase the terms and coverage. The benefit proceeds are guaranteed for as long as the premiums have been paid and the policy is active. This is particularly attractive for life insurance policies that have variable benefits linked to an underlying investment.
This clause benefits the contract holder because they know that even in the worst-case scenario, their beneficiary or estate will at least get some money, so the premiums or investment the contract holder made was not lost or forfeited. This clause provides protection and security to the contract holder’s heirs and beneficiaries.
The annuitant can rest assured that the beneficiary is protected against market declines and account value drops. If the market experiences an economic downturn, and the total market drops by 20%, the beneficiary will still be entitled to the full amount guaranteed by the annuity or death benefit.
The Setting Every Community up for Retirement Enhancement Act of 2019 made several changes to the rules regarding annuities offered to employees through their 401(k).
Before the SECURE Act the death benefit clause of annuities in 401(k), meant that if an employee dies, the annuity would be triggered. This could lead to the beneficiary being forced to liquidate their annuity. However, the SECURE Act makes 401(k), annuity investments transferable. This allows beneficiaries to transfer their inherited annuity into another direct trustee-to trustee plan. This eliminates the need to liquidate and pay surrender fees and fees.