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Two common types of variable annuities are deferred fund linked.
These were introduced in the 1970s, in the US, which provides clients ways to participate in the financial markets and it ensured peace of mind as it provided low-risk portfolio allocation options.
Both Guaranteed Minimum Accumulation GMAB and Death Benefits (GMDB) originated at the same time and both give a certain minimum return as per the contract on the completion of a term.
It can provide guaranteed benefits where the fee ranges from 35 to 65 basis points and was considered inexpensive as compared to other guaranteed return benefits.
The options allow the investors to protect the principal by locking growth or accepting annuity and the term of returns is set for a long like 10 years wherein in the end you get a greater amount of the contract, irrespective of the market conditions.
There are many benefits of such options where at the end of the contract period you get a lump-sum amount.
If the economy contracts, the interest in the rider among the prospects may increase.
This is the kind of alternative investment appropriate for conservative investors who aim to put in the long term, typically, over 7 years and the key motivators are guaranteed on the principle that one can get higher returns on the completion of the period.
The client pays a fee but there is no extra cost and the client should understand the pros and cons of such investments before opting for it.
The advisors should consider holding the contract term for long which is beneficial because it comes with the guaranteed performance of the asset allocation subaccount selected by the client based on risk tolerance.
Advisors should factor in the financial services strength and hedging investment strategies of the offer that are used to mitigate risk.
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