What is a death benefit (GMDB) in a variable annuity?

• A. A rider that guarantees the beneficiary will receive a fixed amount on death regardless of premiums or value.
• B. A rider that pays only if the contract holder dies, not related to value.
• C. A rider that increases contract value upon death.
• D. A rider that guarantees the payout is never less than contract value.

Answer: (C)

A Guaranteed Minimum Death Benefit (GMDB) is a rider on a variable annuity that ensures a payout to beneficiaries when the contract holder dies. The key idea is that the amount payable at death isn’t a fixed sum; it’s tied to the contract’s value and can be increased by features like step-ups. In practice, the death benefit is typically the greater of the original premium base (or a guaranteed minimum) and the current account value at death, so the beneficiary receives more if the account has grown and is protected if it has fallen. This is why the correct concept is that the rider increases the amount paid out upon death, rather than guaranteeing a fixed amount independent of the contract’s value.