Study guide
3.4 Annuity Features and Riders
Series 6 Investment Company Products
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1 Introduction
About the Series 6 Exam How to Use This Course
2 Chapter 1: Regulatory Fundamentals
1.1 Securities Regulations Overview 1.2 FINRA Rules and Structure 1.3 Communications with the Public 1.4 Prospectus Requirements 1.5 Ethical Standards and Prohibited Practices
3 Chapter 2: Investment Company Products
2.1 Mutual Funds Overview 2.2 Types of Mutual Funds 2.3 Share Classes and Sales Charges 2.4 Reducing Sales Charges 2.5 Mutual Fund Taxation 2.6 Mutual Fund Operations 2.7 Unit Investment Trusts (UITs) 2.8 Exchange-Traded Funds (ETFs) 2.9 Closed-End Funds
4 Chapter 3: Variable Contracts
3.1 Variable Annuities Overview 3.2 Accumulation and Annuity Phases 3.3 Annuity Payout Options 3.4 Annuity Features and Riders 3.5 Variable Annuity Taxation 3.6 Variable Life Insurance 3.7 Variable Life Insurance Taxation 3.8 Variable Contract Suitability
5 Chapter 4: Customer Accounts
4.1 Types of Customer Accounts 4.2 Retirement Accounts 4.3 529 College Savings Plans 4.4 Customer Identification Program (CIP) 4.5 Know Your Customer (KYC) 4.6 Account Documentation and Disclosures 4.7 Special Account Situations
6 Chapter 5: Suitability & Recommendations
5.1 Suitability Obligations 5.2 Investment Objectives 5.3 Risk Tolerance and Time Horizon 5.4 Making Suitable Recommendations 5.5 Retirement Planning Recommendations 5.6 Education Planning Recommendations 5.7 Recognizing Unsuitable Recommendations
7 Chapter 6: Processing Transactions
6.1 Mutual Fund Transactions 6.2 Variable Annuity Transactions 6.3 Trade Confirmations 6.4 Account Statements 6.5 Recordkeeping Requirements 6.6 Error Resolution
3.4 Annuity Features and Riders
Key Takeaways Explain This Topic AI
Standard death benefits are included; enhanced benefits cost extra.
GMIB requires annuitization; GMWB and GMAB do not.
Surrender charges typically decline over 5-7 years.
Most contracts allow a 10% annual free withdrawal.
Total annual fees can exceed 2% to 3.5% with riders.
Last updated: January 2026
Variable annuities offer various features and optional riders that provide additional guarantees. Understanding these features, their costs, and their benefits is essential for Series 6 exam success and for making appropriate recommendations.
Standard Death Benefit
Most variable annuities include a standard death benefit at no additional charge:
Standard Death Benefit: If the annuitant dies during the accumulation phase, the beneficiary receives the greater of:
- The current account value, OR
- Total premiums paid (minus any withdrawals)
This protects beneficiaries from receiving less than was invested, even if the market declined.
Enhanced Death Benefits (Optional Rider)
For an additional fee, enhanced death benefits may include:
- Enhancement Description
- Stepped-Up Death Benefit Lock in gains at specified intervals (annually, on anniversary)
- Highest Anniversary Value Death benefit equals highest value on any contract anniversary
- Roll-Up Death benefit grows at a specified rate (e.g., 5%/year) regardless of market
Cost: Enhanced death benefit riders typically cost 0.25% to 0.75% annually.
Guaranteed Living Benefits (GLBs)
Living benefit riders provide guarantees while the annuitant is still alive . These are the "GM" riders frequently tested on the exam:
GMIB - Guaranteed Minimum Income Benefit
What it guarantees: A minimum income amount when the contract is annuitized, regardless of actual account performance.
How it works:
- A "benefit base" grows at a guaranteed rate (e.g., 5-6% annually)
- When annuitized, income is calculated using the higher of actual value or benefit base
- Typically requires a 10-year waiting period before exercising
Key Point: You MUST annuitize the contract to receive this benefit. The benefit base is NOT the account value.
- Cost: Typically 1.0% to 1.5% annually
- GMWB - Guaranteed Minimum Withdrawal Benefit
What it guarantees: The ability to withdraw a percentage of your principal annually (typically 4-7%), regardless of market performance.
How it works:
- Withdraw a set percentage (e.g., 5%) of original investment annually
- Continue withdrawals until you've recovered 100% of principal
- Works even if account value drops significantly
Example: Invest $100,000 with 5% GMWB. Market drops account to $75,000. You can still withdraw $5,000/year (5% of original $100,000) until you've received the full $100,000 back.
- Cost: Typically 0.5% to 1.0% annually
- GMAB - Guaranteed Minimum Accumulation Benefit
What it guarantees: Your account value will be at least equal to your principal (or a stepped-up amount) after a waiting period.
How it works:
- Typically requires a 10-year waiting period
- At the end of the period, if account value is below premiums paid, it's stepped up
- Does NOT require annuitization
- Can take lump sum after the period
Example: Invest $100,000. After 10 years, account is worth $85,000 due to market losses. GMAB steps up the value to $100,000.
- Cost: Typically 0.50% to 0.75% annually
- Comparison of Living Benefits
- Rider Guarantee Annuitization Required? Typical Waiting Period
- GMIB Minimum income stream YES 10 years
- GMWB Withdrawal of principal NO None typically
- GMAB Minimum account value NO 10 years
Exam Tip: GMIB requires annuitization. GMWB and GMAB do NOT require annuitization.
Surrender Charges
Surrender charges are fees imposed for withdrawing more than the free withdrawal amount during the surrender period :
Typical Surrender Charge Schedule
- Year Typical Charge
- 1 7%
- 2 6%
- 3 5%
- 4 4%
- 5 3%
- 6 2%
- 7 1%
- 8+ 0%
- Free Withdrawal Provision
Most contracts allow 10% of account value annually to be withdrawn without surrender charges:
- Often called the "free corridor"
- May be cumulative (unused portion carries forward)
- Applies even during surrender period
- Surrender Charge Waivers
Some contracts waive surrender charges for:
- Terminal illness - Medical diagnosis of short life expectancy
- Nursing home confinement - Extended care need
- Death - Beneficiary receives full value
- Annuitization - Typically waived if contract is annuitized
- Free Look Period
State insurance laws require a free look period after receiving the contract:
- Typically 10 to 30 days depending on state
- Full refund of premiums paid
- No surrender charges apply
- Allows time to review and cancel if unsuitable
- Other Common Features
- Dollar Cost Averaging
- Automatic transfers from money market to other subaccounts
- Invest fixed amount at regular intervals
- Available within the annuity at no extra charge
- Automatic Rebalancing
- Maintain target allocation percentages
- Automatically adjusts after market movements
- Available quarterly, semi-annually, or annually
- Systematic Withdrawals
- Take regular distributions without annuitizing
- Maintain control over contract
- Subject to surrender charges if in surrender period
- Total Cost of Variable Annuities
Variable annuities have multiple layers of fees :
- Fee Type Typical Range Purpose
- M&E Risk Charge 1.0% - 1.5% Mortality and expense risk guarantee
- Administrative Fee 0.10% - 0.30% Contract administration
- Subaccount Expenses 0.25% - 1.00% Underlying fund management
- Rider Costs 0.50% - 1.50% Optional guarantees (GMIB, etc.)
- Surrender Charges 0% - 7% Early withdrawal penalty
Total annual cost for a variable annuity with riders can easily reach 2% to 3.5% or more.
- Key Exam Points
- Standard death benefit is typically included at no extra cost
- GMIB requires annuitization ; GMWB and GMAB do not
- Surrender charges typically decline over 5-7 years
- Free withdrawal of 10% annually is common
- Free look period allows cancellation without penalty
- Living benefit riders add 0.5% to 1.5% annual cost