One of the major reasons living benefits have grown in popularity is because they reduce investor risk. The popularity is a direct result of poor market performance. Living benefits evolved because of this market decline and have made investing easier.

As the market had its steady and severe decline in the early 2000's, insurance companies came up with a novel idea: why not guarantee investors a rate of return, regardless of market performance. The GMIB is the grand daddy of the living benefits.

Other living benefits have been introduced since the first GMIB was released over 6 years ago. Now we have guaranteed minimum withdrawal benefits also known as GMB's, guaranteed account values known as GAV, and life-time benefits. Each one of these benefits may not be available at all insurance carriers and can go by different names. All these benefits deflect the risk of investing in the stock market and puts the risk on the insurance company. Of course, the insurance companies may make a profit from the fees you pay on these benefits. Lets take a look at the different benefits.

GMIB:
The terms of the guarantees seem pretty simple, you invest in the company's variable annuity for a specified number of years, typically 10 years. If the market does not perform well, the company guarantees you a minimum income stream for life, even if your account is at zero. The insurance company gives you a minimum interest rate for that 10 year period of time, usually 5 or 6%, which accumulates and is considered the "base benefit" amount. This base benefit amount is what is used to calculate the minimum stream of income that is guaranteed for the rest of your life. This benefit does require you to annuitize the contract. That means you turn in your contract for a stream of income, this option is irrevocable. The term used for this benefit is GMIB which stands for guaranteed minimum income benefit. Different companies use different terms for this benefit.

GWB:
The guaranteed withdrawal benefit was the second living benefit that hit the insurance market about 5 years ago. This benefit allows the owner of the contract to take withdrawals for a guaranteed minimum period of time. This type of benefit guarantees you your money back in the form of withdrawals. A withdrawal benefit usually allows you to take withdrawals in the amount of 6 to 12%. Typically, the benefits allow 7% on average and guarantees you that 7% for a minimum of 14.2 years, which equals 100% of your principal back. These benefits usually allow for step-ups every 3 to 5 years, and when you step-up the account value, assuming positive investment results, it restarts the 14.2 year time frame all over again. This benefit allows you to increase your income if your investments go up and guarantee your money back if you lose money in the market. Keep in mind you only get your money back in the form of withdrawals, it is not a lump sum benefit.

GAV:
These types of benefits guarantee your money back in a lump sum form. You invest your money with a company that has this benefit and after a specified number of years the benefit will mature and you receive, at a minimum, your money back. Depending on the company, you will have to hold the contract anywhere from 5 to 10 years in order to get your money back. There are many different variations to this benefit. It can either require you to invest into asset allocation funds or you give the company the authority to move money back and forth between the sub-accounts and the company's fixed account. After the required time period, if your account value is lower than your initial investment or the last stepped-up amount, if the company allows you to step-up the benefit, you will get back your money in a lump sum.

For-Life Benefits:
These are the newest living benefits. This type of benefit allows you to receive a percentage, usually 4 to 6%, of your original investment for as long as you live. These benefits also allow your income to increase if you experience positive investment performance, usually every 3 or 5 years. These benefits are usually age based, so depending on your age you may be charged more if you are younger and less if you are older. You may also be able to take out a greater percentage of your original investment if you are older. These benefits are pretty straight forward as long as you live the company will pay you. So if you invested $100,000 you are able to take out $5,000 per year for the rest of your life. There are many variations on this type of benefit and every company has a different name for it. Again this is an income benefit not a lump sum benefit.

Living benefits can be a wonderful thing, but they are extremely confusing. Just by reading the descriptions above, do not assume you understand them. What I had written above is a very simplified version of the benefits. Each benefit has pros and cons and even many of the agents or brokers selling them do not fully understand them. You have to know what you are buying and if there is a better one on the market for your needs. This is where I come in to help you. I have done the research, I have read all the materials and I have ripped them apart and rated each benefit from the top selling annuity companies. No other source out there has done what I have done and given you straight unbiased facts behind, not just living benefits, but annuities themselves. Please remember that even if an annuity ranks low it does not mean it is a bad product or benefit. It is meant to compare each contract against its peer group. Each state may have a different variation of the products presented here. Please check with each company to insure that the benefits are available in your state.

Scott DeMonte is a widely respected expert in variable annuities. Scott has worked as both a financial advisor and as an executive for 2 of the best selling variable annuity contracts sold in America.

With over 12 years experience in the financial services industry, Scott decide to start his own company, http://www.annuityiq.com. Through his expertise he evaluates and rates variable annuity contracts.

By educating both brokers and consumers, Scott