A lifetime-income rider may keep paying after account value reaches zero, but its income base is not cash you can withdraw.
An annuity statement may show two different numbers:
The account value and an income benefit base.
Confusing them can lead to a costly decision.
The account value is the value used under the contract to calculate many transactions. It may change with interest credits, rider fees, and withdrawals. The amount you could actually take if you leave the contract is the cash surrender value, which can be lower after applicable charges or adjustments. An income benefit base is usually a separate number used to calculate a lifetime withdrawal amount.
It is not:
- A bank balance
- A cash value
- An investment return
- Necessarily an amount your heirs receive
Its growth formula, if any, may differ from the account’s interest credits.
A Simple Example
Suppose an illustration shows:
Account value: $500,000
Income base: $600,000
If its hypothetical payout factor is 5%, the indicated annual withdrawal would be:
$600,000 × 5% = $30,000 per year
But the $600,000 income base does not mean you can cash out $600,000.
These figures do not describe any particular carrier, and a real rider may use different definitions, factors, ages, fees, or reset rules.
What Happens If the Account Reaches Zero?
What happens if withdrawals and charges eventually bring account value to zero?
With a qualifying guaranteed lifetime withdrawal benefit, the insurer can continue the specified lifetime payments under the rider’s terms. The NAIC’s buyer’s guide describes this feature.
The income promise is subject to the insurer’s claims-paying ability. It can be changed or lost if the contract’s requirements are violated. For example, an excess withdrawal may reduce the benefit.
Read the actual rider for its rules. There is another side to the question.
If you want to terminate the contract and take a lump sum, the income base is not the amount payable. If the account value is depleted and rider payments continue, there may be no remaining account value to surrender or pass to heirs. If you die while value remains, a beneficiary may receive a contract-defined death benefit; the amount and options vary. A joint-life rider can also change the payout and continuation rules for a spouse.
Ask to See All Three Numbers
Ask for a current statement or illustration showing:
- Account value
- Income benefit base
- Cash surrender value
Then ask the carrier to show how a one-time emergency withdrawal would affect future income and the beneficiary benefit. That is more useful than focusing on a large “roll-up” number in an advertisement.
Educational example only. The written policy and rider control; no hypothetical benefit base or payout factor is a product quote.