For individuals looking for a stream of income, they may add a Guaranteed Minimum Withdrawal Benefit (GMWB) rider to their Segregated fund contract. These guaranteed plans are referred to as a Guaranteed Minimum Withdrawal Benefit (GMWB) Plan or Guaranteed Lifetime Withdrawal Benefit (GLWB) Plan. The stream of income can be for lifetime or for a specific period of time.
Guaranteed Income
In a similar nature of segregated fund contracts, these income benefit plans also provide a maturity and death benefit guarantee. The difference between the two plans is determined by the period of income that they provide. Be aware that not all insurance company are able to offer segregated fund contracts that provide a stream of income.
Accumulation Phase
Guaranteed Minimum Withdrawal Benefit (GMWB) plans and Guaranteed Lifetime Withdrawal Benefit (GLWB) plans are based on an initial deposit or constant deposits by an investor into a segregated fund contract. Theses plans have two types of phases, a savings phase and a payout phase.
The savings phase is also referred to the period of accumulation. At this phase, investors get a credit or bonus for every year where a withdrawal from the contract is not made. The credit is based on a percentage of the initial deposit. The amount of deposits and the annual credits which could be 5%-10%, form the base of which the minimum withdrawal amount is based.
It’s important that no withdrawals happen during the accumulation phase as it could reduce the value of the guaranteed minimum withdrawal amount.
Payout Phase
The payout phases is when the withdrawals begin. At this phase, the guaranteed minimum withdrawals begin based on the amount that was saved during the accumulation phase. The value of the segregated fund contract would decline as withdrawals are received but the annual income guarantee is unchanged. The annual income stays the same regardless of poor market performance.
If withdrawals exceed the guaranteed income payment, penalties and fees could occur. Withdrawals reduce any future guaranteed income payments.
Payout Phase Resets
Typically, the payout value may be reset every three years. Resets would be recommended if the segregated fund contract has increased in value as the guaranteed minimum would be increased as well. The payout amount increases if extra deposits are contributed into the contract.
Terms of Payout Phase
Guaranteed Minimum Withdrawal Benefit Plans (GMWB) payout phase begins at a certain age and lasts for a specified period of time. The payout phase can be for a term or for life. A lifetime payout phase will have a lower monthly withdrawal amount as the income is for life. Individuals who are worried for outliving their financial resources may opt for a lifetime payout phase.
Assuris Protection
To protect investors, Assuris offers their own guarantee if an insurance company becomes insolvent and cannot meet its financial obligations to pay guarantees. Assuris will pay $60,000 or 85% of the guarantee amount, whichever is higher.
