The 5 guarantee types explained — what they protect, when they kick in, and what they cost.
Variable Annuity guarantees are insurance riders — optional features you pay for that protect against specific risks. Each rider has a different purpose, trigger condition, and cost. Here's how they work.
What it protects: Your beneficiaries (heirs).
If you die while the contract is active, your beneficiaries receive at least your original investment, regardless of current market value. Some GMDB variants offer a "ratchet" that locks in periodic market highs.
| Trigger | Policyholder death |
| Payout | Max(account value, original premium) |
| Typical cost | 0.10% – 0.40% annually |
| Best for | Estate planning, protecting inheritances |
Example: You invest $100,000. Markets crash to $60,000. You pass away. Your heirs receive $100,000 (the GMDB floor), not the $60,000 market value.
What it protects: Your principal at a future date.
After a specified waiting period (typically 10 years), you're guaranteed to receive at least your original investment back, even if the market has performed poorly. Think of it as a "money-back guarantee" with a time lock.
| Trigger | Maturity date reached + account below guarantee |
| Payout | Difference between guarantee and account value |
| Typical cost | 0.25% – 0.75% annually |
| Best for | Conservative investors who want market exposure with a safety net |
Example: You invest $100,000 with a 10-year GMAB. After 10 years, your account is worth $72,000. The insurer tops it up to $100,000.
What it protects: Your ability to withdraw a fixed annual amount.
You're guaranteed to withdraw a set percentage of your original investment each year (typically 4–6%), regardless of market performance. Even if your account value drops to zero, the insurer continues paying you.
| Trigger | Withdrawal phase begins (you choose when) |
| Payout | Guaranteed % of benefit base annually |
| Typical cost | 0.50% – 1.25% annually |
| Best for | Retirees who need predictable income from market-linked assets |
Example: $100,000 investment with 5% withdrawal rate = $5,000/year guaranteed for 20 years. Markets crash? You still get $5,000/year.
What it protects: Your withdrawals, with built-in growth.
This adds two powerful features to the basic GMWB:
| Trigger | Withdrawal phase begins |
| Payout | Guaranteed % of the higher of rollup base or ratcheted value |
| Typical cost | 0.75% – 1.50% annually |
| Best for | Pre-retirees who want the highest guaranteed income floor |
Example: $100,000 with 5% rollup for 10 years → benefit base of $162,889. At 5% withdrawal rate, that's $8,144/year guaranteed — even if your actual account is only worth $90,000.
What it protects: Your lifetime income stream.
After a waiting period (typically 7–10 years), you can convert your contract into a lifetime annuity based on the higher of your account value or a guaranteed income base. This creates pension-like income for life.
| Trigger | Annuitization after waiting period |
| Payout | Lifetime annuity based on max(account, guaranteed base) |
| Typical cost | 0.50% – 1.00% annually |
| Best for | People who want guaranteed lifetime income (pension replacement) |
Example: After 10 years, your account is worth $80,000 but your guaranteed income base is $130,000. You annuitize at 6.5% → $8,450/year for life.
| Guarantee | Protects | Cost | Complexity |
|---|---|---|---|
| GMDB | Heirs | Low | Simple |
| GMAB | Principal | Low–Med | Simple |
| GMWB | Withdrawals | Medium | Medium |
| GMWB+Ratchet | Withdrawals + growth | Med–High | Complex |
| GMIB | Lifetime income | Medium | Complex |