Using Variable Annuities

Variable Annuities (VA) with guaranteed benefits can be modeled in Income Discovery. The following are the two types of guarantees that are supported:

  • Guaranteed Lifetime Withdrawal Benefit (GLWB): In this contract, a hypothetical benefit base is adjusted up if the portfolio value net of fees and benefit payouts is higher than it. The benefit base is used to determine lifetime benefits paid out to the annuitant. This benefit rider is also known as Guaranteed Minimum Withdrawal Benefit (GMWB).
  • Guaranteed Minimum Income Benefit (GMIB): GMIB rider based contracts are similar to the GLWB rider based contracts with respect to step-up of the income base; however, they carry additional minimum guarantees. An accumulation phase guarantee provides minimum growth rate for the income base irrespective of the net portfolio value. Another guarantee at the end of the accumulation phase provides minimum income base expressed as a ratio of the initial investment.

Common Fields
Growth Phase
: It refers to the period under which no benefit payouts are made, and it lets the portfolio value grow giving an opportunity to lock in higher income / benefit base. It is expressed in number of years.

Rider Fees: Each rider is offered at a cost that is expressed as a percentage of the income / benefit base. These fees are paid from the portfolio value.

ME & Admin Fees: Mortality, Expense and Administration fees are expressed as a percentage of and are deducted from the portfolio value.

Model Allocation: The field represents the asset allocation model that you will use in the VA. Contract issuers offer standard models within their guaranteed products. You should first configure those standard models in the Capital Market Assumptions tab for the selected scenario set. Only after you have done that would you be able to use the model during VA configuration.

Payout Rate: This represents the percentage of income / benefit base paid out as lifetime benefit at the end of the growth phase. The payout rates are determined based on the age of the annuitant at the end of growth phase.

Tip: If you change the growth phase of the VA, carefully review the payout rate to ensure it represents the rate based on the age of the annuitants at the end of the new growth phase.

GMIB Specific Fields
Compounded Return
: It is the annual minimum percentage by which the income base grows during accumulation phase irrespective of the net portfolio value.

Guaranteed Base: It is the minimum amount of the income base at the end of accumulation phase expressed as a percentage of initial investment in the contract. If the guaranteed base is 200%, it implies that at the end of accumulation phase, the guaranteed amount of income base would be two times the initial investment.

Building Plans Using A Variable Annuity
The Variable Annuities tab is used to configure specifics of a contract being evaluated. The purchase amount of the annuity is not set up in the tab but given at the time of plan analysis. A separate article describes analyzing a plan.

You can analyze multiple income annuities in an income plan, but only one variable annuity, which can either have GLWB or GMIB rider. This is done to simplify the presentation of the plan and Variable Annuity performance. You can view year-by-year portfolio value, income base and fees on screen by pressing the icon to show the details of the plan (Plans panel in Plans panel) and in report by enabling the setting to show the cash flow tables. (Reports panel in Reports panel).


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