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CHAPTER 6

Original lump-sum premium = \$100,000 Withdrawals = \$0 Value of death = \$122,000 Beneficiary receives = \$122,000

# (All amounts are hypothetical.)

If the beneficiary of the annuity owner is the surviving spouse, that person is entitled to treat the annuity as his or her own under the current tax law. The spouse would become the new owner of the annuity.

Recently, annuity issuers have come up with different ways to calculate the minimum guaranteed death benefit, which help out the owner’s beneficiary. One example is the reset death benefit, which has a five-year standard. So, using our previous example, if Mr. Client invests his \$100,000 in the variable annuity on July 1, 2001, the value would be reassessed on July 1, 2006, again on July 1, 2011, and so forth, for the life of the contract as long as Mr. Client didn’t annuitize it. The highest of these amounts, including the original pre- mium, becomes the new guaranteed death benefit. The benefit can always go higher, but not lower.

Another calculation method for the death benefit is a step-up or ratchet basis. The step-up basis works the same way the reset death benefit does, except instead of waiting five years between reevalua- tions, there is only a one-year wait. Therefore, the value of the con- tract would be reassessed on July 1 of every year, rather than every five years. Some variable annuities that offer the step-up basis do so on a quarterly time frame, thus increasing the chance of an even higher death benefit.

Finally, some insurers offer a certain escalation of death bene- fit amounts, which may be three to five percent per year. This type of “roll-up” death benefit works this way: When the annuity owner dies, the beneficiary receives the greatest amount of either the total premium paid, the current contract value, an assumed three percent annual return, or the top death benefit on a specified anniversary date.

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