The True Cost of MYGA Riders: How Optional Benefits Impact What You Earn
When you’re shopping for a multi-year guarantee annuity (MYGA), there are a few things you need to pay attention to other than just the interest rate:
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| Liberty Bankers LifeHeritage Elite 9 | 5.50% | 9 |
| Oxford LifeMulti-Select 8 | 5.20% | 8 |
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- Compounding vs. Simple Interest
- Market Value Adjustments (MVAs)
- Optional Annuity Riders
While all of these are important factors that affect the performance of your MYGA, we’re going to focus on optional riders.
It’s crucial to understand optional riders because they impact what features are included in a MYGA as well as what the effective interest rate is. So, to make sure you are getting the best deal on your MYGA, let’s dig into optional annuity riders and how they work.
What is a MYGA Annuity Rider?
Annuity riders are optional additions to the base annuity contract. They offer additional features to your annuity at an additional cost.
Some of the most common riders with MYGAs are:
- Free Interest withdrawals: the right to take systematic interest withdrawals from your annuity, often available as soon as the end of the first month
- Free 10% Withdrawals: the ability to take discretionary withdrawals up to 10% of your contract value, often starting in contract year 2.
- Enhanced Death Benefits: in the event of your death, surrender charges and MVAs are not applied to the death benefit. This ensures your beneficiaries receive the full account value.
⚠ IMPORTANT: Many of these features are often automatically included in other MYGA contracts. So when you consider optional annuity riders in a MYGA, consider the cost of the rider and if the benefit is automatically included in other competitive MYGAs.
How Much Do MYGA Riders Cost?
With a multi-year guarantee annuity, the cost is generally an interest rate reduction. So when you see an optional rider, it will have a percentage associated with it. This is the cost of the rider.
If your rider costs 0.10%, that means you would deduct your rider cost from your guaranteed interest rate.
In other words, if your rider costs 0.10% and the annuity is guaranteeing you 4.00% interest, your effective interest rate would be 3.90%.
Base Rate (4.00%) − Optional Rider (0.10%) = Effective Rate (3.90%)
Make sure you calculate what your effective rate will be with the riders you want, then compare your effective interest rate against other competitive MYGAs.
When Can Annuity Riders Be Added to an Annuity?
Generally speaking, annuity riders must be selected when starting your MYGA annuity contract. Riders cannot be added to a contract during the term of the annuity.
In other words, you need to choose the riders you want to include when you initially purchase the annuity.
It is important to note that some riders can be added if you choose to renew your annuity contract with the company. During the renewal process, some riders may again become available to you.
Some riders, however, must be included at the initial purchase of the annuity contract and are not available during renewal. So make sure you understand what the annuity riders are, and when you can elect to include them.
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Are Annuity Riders Good or Bad?
The answer to this question really depends on whether or not you will need the rider, and how much it costs.
If you are buying an annuity and plan to take withdrawals from it, make sure that your withdrawal rider fee doesn’t reduce your effective interest rate below what you could otherwise get on the market.
On the other hand, if you are purchasing an annuity solely to grow your money and are absolutely certain you will not need to take withdrawals from it, selecting a contract where discretionary withdrawals are an optional rider, but not including these riders, can be beneficial. You very well may get a higher interest rate than is otherwise available.
Can Someone Help Me Understand Which MYGAs and Riders Will Work For Me?
Absolutely! Our U.S.-based annuity experts understand the state-specific MYGA options available to you, and can help you navigate them to find the best annuity from a well-rated company. We will give you honest answers to your questions and help simplify the annuity selection process.
As a primer, here are some questions to consider:
- Will you need to take withdrawals? If so, what liquidity features do you need?
- Do you need to take required minimum distributions (RMDs) from your MYGA?
- Are you married? If so, will your spouse continue the MYGA if you die?
- If you die during the MYGA, do you want your beneficiaries to get the full death benefit?
When you’re ready, call us at (866) 866-1999. We will help you evaluate MYGAs to find the annuity that will pay you the most interest with the features you need. There’s no obligation, and we promise we won’t pressure you with sales pitches. We’re here to help you find your best annuity.
The Bottom Line
Annuity riders are optional benefits you can elect to include in your annuity contract. Their cost is typically an interest rate reduction applied to your base annuity rate.
Not all insurers have optional riders. In fact, many insurers include typical rider benefits in their base annuity contracts at no additional cost to you.
If you forgo a rider, you may get a higher interest rate than you could get otherwise. Just make sure your annuity (including all the riders you will need) is paying you the most interest and your insurance company is financially sound.
Do all MYGAs have optional riders?
No, in fact most MYGAs do not have optional riders. Some companies offer riders as a way to offer a higher interest rate than they could by including the rider benefits on every contract. Many insurers automatically include typical rider benefits in their contracts at no additional cost. Check with an annuity expert or request a sample annuity contract to understand what's included in your annuity.
Are MYGA riders a good deal?
This depends on whether you need the benefits in the rider. If you do not need the rider benefits, not including the rider can get you higher effective yields. However, if you do need the riders, comparison shop to make sure you're still getting the best deal with the riders' costs.
Can I add riders to my MYGA at any time?
No, most riders must be selected when you start the annuity. You cannot add them during the term of the MYGA annuity. However, some riders are available to be added if you choose to renew your MYGA contract the end of the term.
How can I tell if an annuity has optional riders?
There are a few ways to figure this out. You can call an annuity expert at (866) 866-1999 for a quick answer. You can also read the product brochure or check the specific product page on our website. We list annuity riders in the FAQ section of each annuity product.
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