Guaranteed Minimum Accumulation Benefit (GMAB)

The Guaranteed Minimum Accumulation Benefit (GMAB) is a benefit available with a deferred variable annuity. However, like all variable annuity owners, you face the risk that the variable sub-accounts in which you invest may underperform for some periods of time. The GMAB is designed as a solution to this risk by guaranteeing the future return of your principal, at a minimum, as long as you hold it for a specified period of time.

The GMAB is an option that is usually available to you only at the time of contract Issue. The GMAB provides assurance to you that upon remaining in force for a specified period of time (typically 10 or 20 years), the account value will at least equal the amount of your initial investment. If your contract value is below your initial investment at that specified time, the insurance company will make a one-time adjustment, adding the difference between the current contract value and the initial premium (minus withdrawals) back to your contract.

The ability to lock-in growth is also available in some 10-year GMABs by using a reset feature. Beginning with the second contract anniversary, the reset feature allows variable annuity owners to re-select the 10-year GMAB. This results in locking in any accumulated growth (proportionately adjusted for withdrawals) as of the reset date, for another ten years. For investors with longer term investment horizons, some 20-year GMABs guarantee to at least double the value of their portfolio after 20 years.

If you are near retirement age, making a decision to invest a portion of your life savings can be a major dilemma. Intellectually, you may be convinced that your investment horizon should remain at least 10 years, and you may also be convinced that you should remain invested in equities, as an inflation hedge. But you may also fear that once you have purchased an annuity, the equity markets might drop. The GMAB is targeted to people with these concerns.

An Example:
You purchase a $200,000 variable annuity with a 10-year GMAB. You hold the annuity for ten years, and make no withdrawals. During this time, the stock market has declined, and the market value of the funds in the variable annuity sub-accounts is only $146,000. However, with the GMAB feature, the insurance company will add the difference and bring the contract value back up to your initial investment of $200,000.

When you choose a GMAB, you are paying additional fees (typically, 0.25 to 0.65 percent annually) in order to obtain a guaranteed minimum return on your account. Some companies will refund the GMAB fees if the provision isn't used. At the GMAB maturity date, if the market has performed poorly, investors will use the GMAB provision and receive their guaranteed amount. If, on the other hand, the market has performed well and their account value exceeds the guaranteed amount, the GMAB provision won't be used and the cumulative cost of the benefit will be credited pro rata to their account value.

* Guarantees are based on the claims-paying ability of the issuing company or companies.

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