A Lifetime GMWB guarantees a withdrawal stream for life, often around 5% of the benefit base. The benefit is an additional rider costing from 50 to 95 basis points on the most popular products.

Here is the catch: this guaranteed living benefit usually comes in a single life version or a joint life version covering, for example, a husband and wife.

According to statistics gathered by ASMC, election rates for the joint life Lifetime GMWB are at 5%, while the single life version is chosen 95% of the time. While these statistics come from a small sample of carriers and we do not have industry wide results, indications are that the election rates for the joint life version of the Lifetime GMWB are unusually low.

Common sense might tell us that the election rates ought to be roughly equivalent to the rates of marriage in the population as a whole. About 49 percent of the nation’s roughly 110 million households in 2005 were made up of married couples.* It makes sense that about half of all Lifetime GMWB riders purchased would be set up to cover both the husband and wife. But that is not the case.

While we do not have statistics telling us what percentage of annuity purchasers are married, intuition would tell us that this statistical disparity is real.

• Advisors do not understand there are two versions of the Lifetime GMWB, a single life and a joint life version. Often the prospectus doesn’t clearly indicate there are two versions. Perhaps also advisors are unclear of the difference in features and costs between the joint life and single life riders.
• The VA was purchased inside an Individual Retirement Account. Many advisors may incorrectly assume that the spousal version of the Lifetime GMWB cannot be used inside an IRA. It’s an easy misperception to have. With almost two-thirds of variable annuities held inside IRA accounts, this might explain the statistical anomaly. To achieve spousal coverage inside an IRA, just choose the joint life version of the Lifetime GMWB and name the spouse as the sole primary beneficiary. (Note: a minority of carriers will not allow the joint version of the Lifetime GMWB on an IRA account.)
• Clients want the less expensive, higher yielding benefit. The single life version often offers a higher guarantee percent and is less costly, running from 10-20 basis points less than the joint life version.

This has implications when planning for lifetime income for a surviving spouse. Clients don’t realize that benefits will be lost upon the death of one spouse. Incorrectly applying a lifetime withdrawal benefit could lead to problems. Advisors need to seriously consider the implications of the single life versus joint life versions of the Lifetime GMWB.