Guaranteed Minimum Income Benefit

A guaranteed minimum income benefit (GMIB) is an optional “living benefit” guarantee that can be embedded into a variable annuity product. The GMIB provides a floor or a guaranteed minimum annuity payment regardless of investment performance. However, the annuity owner also has the option to lock-in a higher payout when annuitizing if investments have performed well and the contract value exceeds what it would be with the minimum income benefit. For example, Catherine invests $150,000 into a variable annuity and selects a GMIB that provides 4% annually. The capital markets have performed terribly and as a result the variable annuity contract value is only $75,000 at the end of 10 years. Catherine is in a good position though because she has $222,036 to annuitize as a result of the GMIB.