A guaranteed minimum withdrawal benefit (GMWB) rider is designed to:
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Answer & full 3-part explanation (select an option above, or peek)
Why A is correct
A guaranteed minimum withdrawal benefit rider promises that the owner may withdraw at least a specified annual amount, in many cases for life, even if the underlying account value falls to zero because of poor investment performance. The guarantee is typically based on a benefit base that grows with premiums and sometimes with bonuses, rather than on the actual account value. It converts market risk into a guaranteed income stream for the owner over the withdrawal period. Withdrawals under the rider reduce the benefit base and may permanently lower the guaranteed amount.
Why the other options are wrong
- B) The guarantee applies to withdrawals, not to the interest crediting rate on the premiums. A benefit base, not the current account value, determines the guaranteed withdrawal amount available to the owner.
- C) A minimum death benefit is a different rider designed to protect the beneficiary at the owner's death. The rider guarantees withdrawals, not a minimum interest-crediting rate on the premiums.
- D) Waiving premiums is the function of a waiver of premium provision, not a withdrawal guarantee. A minimum death benefit rider protects the beneficiary, while a GMWB protects the owner's income stream.
Memory hook
GMWB: guaranteed withdrawals even if the account tanks. The benefit base promises the paychecks.