For variable annuity policies only, this is the payment guaranteed to the investor if he or she dies before the annuitization date. This benefit typically guarantees some base rate of payment to the investor's survivors. Generally, no surrender charges apply to the death benefit, and the beneficiary may receive the amount either as a lump sum or as an annuity.
The Death Benefits are abbreviated in Morningstar Advisor Workstation as follows:
|
Abbreviation |
Death Benefit Type |
|
AV |
Accumulated Value |
|
AV+25% P |
Accumulated Value + 25% Last 12 Mth Prem |
|
AVxDBF |
Accum Value x Death Benefit Factor |
|
AVxDBP FC |
Accumulated Value x DBP Face Amount |
|
AVxLMT |
Accumulated Value x Limitation |
|
FC |
Face Amount |
|
FC + SP |
Face Amount + Scheduled Premiums |
|
FC or AVxDBF |
Max of Face Amt or Acc Value x DB Factor |
|
FC+AV-SPP |
Face Amount + Accumulated Value - SPP |
|
FWA |
Face with Accumulation |
|
H ANV |
Highest Anniversary Value |
|
H6 ANV |
Highest 6th Year Anniversary Value |
|
PR |
Return of Principal |
|
P-W |
Premiums - Withdrawals |
|
P-W CMP |
Premiums - Withdrawals Compound Annually |
|
RF |
Rising Floor |
|
SU |
Step Up |
|
SV |
Surrender Value |
Benefits
Investors should study a variable product's death benefits in order to understand how they might affect the overall investment. Benefit types vary greatly, making them either more or less attractive, according to the investor's needs.
Origin
This information is taken directly from the prospectus.
Example
In a principal death benefit, if a contract holder invested $1000 at year one, and at year two the account value fell to $900 and the contract holder died, their beneficiary would get $1000, for an effective death benefit of $100.
For the Pros
About Accumulated-Value Benefits (AV)
Accumulated-value death benefits are much rarer than the principal death benefits. It simply pays the dollar amount accumulated in the investor’s contract at the time of his or her death (also known as the contract value or cash value). Unlike the principal death benefit, the accumulated-value death benefit does not protect the investor’s beneficiary from possible depreciation caused by negative returns on investments.
About Principal Benefits (PR)
Total premiums less surrenders do not take into account any gains or losses in an investor's contract. For example, if an investor paid $1000 into a variable annuity contract and two years later withdrew $300, with the surrender charges totaling $20, the value of total premiums less surrenders would be $680 (contract contributions less withdrawal and corresponding surrender charges).
Because the principal benefit is the greater of the contract value or total premiums less surrenders, only appreciation (and not depreciation) in the investor's contract value will affect the death benefit.
About Rising Floor Benefits (RF)
These benefits are perhaps most useful to investors who maintain a conservative investment style and who are concerned that in the event of premature death, they will not have attained a desired level of return. It offers the best protection over the short term (which would be approximately 10 years if the contract were offering 7% in interest), because the rising-floor benefit is limited to just 200% of the premiums paid, less surrenders and withdrawals.
About Stepped-Up Benefits (SU)
With a stepped-up benefit, an investor with a six-year Stepped-Up benefit, for example, has the option on the sixth anniversary date of the contract, to replace the initial base death benefit (total premiums less withdrawals) with the current value of the contract, if it is more attractive. Moreover, six years later, the investor will have another opportunity to "step up" his or her death benefit to the contract's current value.