Today’s review will be discussing the inheritance enhancer, a death benefit rider offered from Great American (GAFRI).
The review will discuss what the inheritance enhancer is, how it works, and if it should be added to your Great American fixed-indexed annuity.
The inheritance enhancer is what is known as a death benefit rider. A death benefit rider is an optional rider (benefit) that comes with the annuity product and provides the annuitant’s beneficiaries a larger death benefit than would be available without the rider. A death benefit rider works just like an income rider, but increases the death benefit at a specified rate of return as opposed to income.
The inheritance enhancer is offered on the American Legend II, American Valor 10, Safe Outlook, and Safe Return fixed-indexed annuities offered by Great American. The inheritance enhancer death benefit grows at a rate of 7% per year for a maximum of 15 years. Ex: If the policy is issued for a 60 year old and the inheritance enhancer is selected, the death benefit will grow by 7% per year until the client reaches 75 years of age. Even if the annuitant lives to be 85, the inheritance enhancer death benefit would stop growing at 75. If the client dies before the age of 75, then the death benefit would be calculated up to that particular year and then paid out to the beneficiaries. If the annuitant dies at the age of 70, then the death benefit would have grown 7% per year for 10 years. The inheritance enhancer is not guaranteed a 15 year growth period, it stops growing at the earlier of death or 15 years.
One of the things to note about the inheritance enhancer is that the annuitant must live 5 years for the beneficiary to receive the enhanced death benefit offered by the rider. If the annuitant dies within 5 years, then the rider is not available to the beneficiary. If the annuitant lives longer than 5 years, there are two settlement options available to the beneficiary.
1.) A lump sum payout, meaning a single payment which is calculated as the basic death benefit (not the rider) plus 50% of the difference of the account value and the death benefit base (the value that the death benefit rider has grown to).
2.) Annuitization, meaning the death benefit is paid out for life or a minimum of 5 years. If the death benefit settlement option is chosen to be annuitized, then the beneficiary will receive the 100% of the enhanced death benefit.
The inheritance enhancer does come with a charge of 0.75% per year and is deducted against the account value. The rider can be cancelled at any time by written notice.
The inheritance enhancer offers an enhanced death benefit and may be a good fit for someone who is looking to pass their wealth on to their beneficiaries. If you are planning on using the annuity for income purposes, then the inheritance enhancer would not be a good fit, and the annuitant might want to consider an income rider.