What is Guaranteed Minimum Death Benefit (GMDB)?
A Guaranteed Minimum Death Benefit (GMDB) is a provision found in variable annuities that guarantees a minimum payout to beneficiaries if the annuity holder dies. This benefit is designed to protect the investment made in a variable annuity, ensuring that the beneficiaries receive at least a predetermined minimum amount, even if the market performance of the underlying investments has been poor.
Typically, a GMDB ensures that the beneficiaries will receive at least the original premiums paid, minus any withdrawals, regardless of the annuity’s current market value. Some policies may also offer enhanced GMDB options, which include adjustments for investment gains or annual step-ups to lock in higher values during good market years.
The GMDB feature is particularly appealing for those who want to participate in the potential growth of the stock market through a variable annuity but also want to safeguard their investment for heirs. This guarantee can help provide peace of mind, knowing that the annuity will not lose value below a certain point, protecting against market volatility.
However, a GMDB may involve additional fees or charges within the annuity contract. Understanding the specific terms of a GMDB, including costs and potential benefits, is essential when considering a variable annuity with this feature.