Terry Turner, writer and researcher for RetireGuide
  • Written by
    Terry Turner

    Terry Turner

    Senior Financial Writer and Financial Wellness Facilitator

    Terry Turner has more than 35 years of journalism experience, including covering benefits, spending and congressional action on federal programs such as Social Security and Medicare. He is a Certified Financial Wellness Facilitator through the National Wellness Institute and the Foundation for Financial Wellness and a member of the Association for Financial Counseling & Planning Education (AFCPE®).

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    Michael Santiago
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    Michael Santiago

    Senior Financial Editor

    Michael Santiago, a senior financial editor, joined RetireGuide in 2023. With over 10 years of professional writing and editing experience, he brings a wealth of expertise in creating content for diverse industries, including travel and healthcare. Having traveled to more than 40 countries across five continents and lived in Europe and Asia for several years, Michael's global perspective enriches his work. He combines his strong writing skills, editorial judgment and passion for crafting accurate and engrossing content to enhance the user experience on RetireGuide.

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    Brandon Renfro, Ph.D., CFP®, RICP®, EA
    Brandon Renfro, RetireGuide Reviewer

    Brandon Renfro, Ph.D., CFP®, RICP®, EA

    Retirement and Social Security Expert

    Brandon Renfro is a Retirement and Social Security Expert and financial planner. He focuses on helping clients create a secure financial future in retirement and co-owns Belonging Wealth Management. He is also a former finance professor and writes for several publications.

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  • Published: June 19, 2023
  • Updated: October 6, 2023
  • 9 min read time
  • This page features 5 Cited Research Articles
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How to Cite RetireGuide.com's Article

APA Turner, T. (2023, October 6). Annuity Riders: Types & How They Work. RetireGuide.com. Retrieved February 29, 2024, from https://www.retireguide.com/annuities/riders/

MLA Turner, Terry. "Annuity Riders: Types & How They Work." RetireGuide.com, 6 Oct 2023, https://www.retireguide.com/annuities/riders/.

Chicago Turner, Terry. "Annuity Riders: Types & How They Work." RetireGuide.com. Last modified October 6, 2023. https://www.retireguide.com/annuities/riders/.

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Key Principles

RetireGuide’s mission is to provide seniors with resources that will help them reach important financial decisions that affect their retirement. Our goal is to arm our readers with knowledge that will lead to a healthy and financially sound retirement.

We’re dedicated to providing thoroughly researched annuity information that guides you toward making the best possible financial decisions for you and your family.

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Key Takeaways
  • You can add riders to your annuity to personalize it for your specific financial needs and situation.
  • Each rider comes with a cost, usually between 0.5% to 1% of your annual premium.
  • Annuity riders can be generally divided into living benefits and death benefits. The former you receive during your lifetime and the latter is given to your beneficiaries after you die.
  • Not all providers offer all riders for each type of annuity. Be sure to fully understand your options before adding a rider to your annuity.

What Are Annuity Riders?

Annuity riders are optional clauses designed to enhance the advantages of a standard annuity and enable customization of the annuity contract to better align with individual circumstances and preferences. Annuities are commonly purchased to ensure a guaranteed income during retirement, and incorporating a rider allows for tailoring the contract to specific needs and requirements.

Annuity riders generally fall into two categories: living benefits or death benefits. Living benefit annuity riders provide a benefit to you, the annuity contract holder, and come into play while you are alive. Death benefit riders provide a benefit to your beneficiaries and are enacted after your death.

Depending on your financial or health outlook, you might choose to add a rider to protect against inflation or to guarantee funds for long-term care services. Adding a rider increases the cost of your annuity, but it also personalizes it specifically for you. Some riders must be purchased with the annuity, while others can be added to the contract at a later date. Not all providers will offer all types of riders, which is why it’s important to ask questions and shop around when looking for an annuity.

Annuity riders allow you to customize your annuity to fit your specific preferences or needs. Before choosing one, it’s important to take the time to understand how it works and understand what it costs.

Types of Annuity Riders

If you’re exploring options to enhance your retirement income, an annuity is a meaningful possibility. In addition, the riders you choose can help you shape your annuity in a way that’s right for you. Here are some of the main types of riders that boost the benefits of your annuity. Remember, not all providers will offer every rider.

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Cost-of-Living Rider

Cost-of-living riders, or COLA for short, help make sure the money you get from an annuity doesn’t lose its value because of rising prices. It’s a safety feature that changes the amount of money you receive to match how prices are going up.

The companies that provide annuities decide how much to increase the money based on the Consumer Price Index (CPI). This is a way to measure how prices change. Sometimes, annuity providers also look at how much the government earns from its bonds to make their decision.

Guaranteed Minimum Income Benefit Rider (GMIB)

A GMIB sets the lowest limit that your annuity can pay out during your lifetime. Your payout will not be limited to that specific amount, but it cannot be less. You might consider this rider if you purchase a variable annuity since investments that form the base of your annuity are subject to market risk. A GMIB rider ensures you’ll receive at least the specified minimum payout, regardless of market performance.

Guaranteed Minimum Withdrawal Benefit Rider (GMWB)

A GMWB lets you withdraw a set percentage of your principal each year until the entire amount has been withdrawn. Typically available for both fixed and variable annuities, a GMWB guarantees your income against poor market results, while also allowing your principal to grow during strong market performance.

Long-Term Care Rider (LTC)

Most Americans will need long-term care at some point in their lifetime. The costs of long-term care keep rising and are not covered by Medicare. An LTC rider increases your monthly annuity payments so you can cover the costs and ensure your long-term care and comfort whether at home or in a care facility. LTC riders are typically available with fixed annuities.

Inflation Protection Rider

Also known as a cost-of-living-adjustment rider (COLA), an inflation protection rider annually adjusts the amount of your annuity payment to offset the impact of inflation. With a COLA rider, your annuity payments won’t lose purchasing power in the future.

Death Benefit Rider

A death benefit rider lets you leave funds directly to your designated beneficiaries, without having to go through probate. Usually added to deferred annuity contracts, you may have the choice of several subtypes of death benefit riders with which to protect your beneficiaries.

Return of Premium (ROP) Rider

A return of premium rider guarantees the refund of your remaining principal to your beneficiaries if you die before the full value of your annuity has been paid out. This type of death benefit rider ensures your heirs will derive the benefit of your annuity even if you are unable to.

Spousal Protection Rider

For a married couple with an annuity, a spousal protection rider will provide the surviving spouse with continued financial security. Depending on the provider, a spousal protection rider would either pay a death benefit or transfer ownership of the annuity to the surviving spouse.

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Considerations for Choosing Annuity Riders

Annuity riders come with a cost, usually between 0.5% to 1% of your annual premium. The exact amount will depend on the provider and type of rider you choose. However, adding a rider is also a way to get more value from your annuity. Nevertheless, it’s important to compare different rider options to see which ones best suit your financial concerns.

The point of having a rider is to tailor your annuity to your needs. What’s right for someone else might not be the best choice for you. Your health, marital status, risk tolerance and financial situation will lead you to the most appropriate riders for your circumstances.

A financial advisor can help you decide which annuity riders to include and explain the potential costs, risks and time horizons. It’s also important to research the financial strength of the insurance company you choose for your annuity. Once you’ve chosen your provider, be sure to understand exactly what their riders will offer you and how much they will cost.

Considerations Before Choosing Annuity Riders
  • Assess your retirement needs. Along with a guaranteed income stream, do you want a rider to account for inflation? Should it leave something for your beneficiaries? Or, do you want to ensure you can cover the costs of long-term care?
  • Research the financial stability of the insurance company you select. Ask the provider which annuity riders they offer.
  • Get a thorough explanation of all costs and fees so you can evaluate which riders are best for your situation.
  • Understand any limitations and exclusions that may apply to your annuity or rider.
  • Seek professional advice. A trusted financial advisor can make the process much simpler.

Frequently Asked Questions About Annuity Riders

Are annuity riders worth the cost?
Annuity riders can be well worth the cost, which usually runs between 0.5% to 1% of your annual premium, because they can ensure your financial security against things like inflation or the rising costs of long-term care.
Can you change the payout options with riders?
Yes, a Commutation Withdrawal Benefit rider allows you to change the way you receive your payout – from a lump sum, to a series of payments or the reverse. This benefit may be limited to a certain period of time and a specific amount.
How do you claim benefits from annuity riders?
You claim benefits from your annuity rider through your provider, according to their policies and processes. If you have a long-term care rider, for instance, you’ll likely be required to provide proof that you need help with at least two activities of daily life, such as bathing, dressing or eating.

Editor Malori Malone contributed to this article.

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Last Modified: October 6, 2023

5 Cited Research Articles

  1. Bernard, T.S. (2023, Feburary 7). For More Certainty in Your Retirement Portfolio, Consider Annuities. Retrieved from https://www.nytimes.com/2023/02/07/your-money/retirement-annuities-investments
  2. Hicks, C. (2023, January 31). 17 Things You Need to Know About Annuities. Retrieved from https://money.usnews.com/investing/investing-101/articles/things-you-need-to-know-now-about-annuities
  3. U.S. Securities & Exchange Commission. (2023). Annuities. Retrieved from https://www.investor.gov/introduction-investing/investing-basics/investment-products/insurance-products/annuities
  4. U.S. Department of Health & Human Services. (2022, May 10). Who Needs Care? Retrieved from https://acl.gov/ltc/basic-needs/who-needs-care
  5. LIMRA. (2018, October 30). New LIMRA Secure Retirement Institute Research Shows Consumers Buy Annuities to Create Income for Retirement. Retrieved from https://www.loma.org/en/news/press-releases/2018/new-limra-secure-retirement-institute-research-shows-consumers-buy-annuities-to-create-income-for-retirement/