What Are Annuity Riders or Provisions, and How Do They Work?

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Annuities can be complex instruments. They can come in all shapes and forms, from immediate to deferred, from fixed to variable, from single life to joint life and everything in between. However, no matter how complex and seemingly custom-tailored, no annuity is ever perfect. That said, you can make them as good as you want by adding one or more annuity riders. If you’re wondering what that means, this post discusses what annuity riders are, how they work, their pros and cons, and the most common options insurance companies will offer when crafting the perfect contract.

What Are Annuity Riders?

An annuity rider or contract provision is an add-on to your annuity contract that can provide you with additional benefits, income or protection. Riders are available for all types of annuities, including:

• Fixed or variable immediate annuities
• Fixed or variable deferred annuities
• Indexed annuities
• Multiyear Guaranteed Annuities or MYGAs, and the rest.

The main goal of adding riders to an annuity contract is to offset some of the cons or drawbacks that some standard contracts come with. In other words, they’re an option offered to make the contract more attractive from the purchaser’s point of view.

For example, annuitizing a deferred annuity usually means that the insurance company will pay you an agreed amount of income for the rest of your life. The insurance company will calculate how much to pay you by estimating how long you’ll live and ensuring that your contract will last up to that exact date. However, if you die sooner than expected, the insurance company will keep the remaining value of your contract to offset the cost of paying those who outlive their life expectancy. If you don’t want to lose your money and leave it to your heir, you’ll need to add a special provision or income rider.

How Do Annuity Riders Work?

You can usually add a rider to an annuity contract either at the time of purchase or later on down the road. This allows you to personalize your contract to fit your evolving needs.