Updated almost 6 years ago on . Most recent reply
AXA Annuity IRA - Current Value higher than 'death benefit'
If this is in the wrong section, apologies.
My mother passed in Septemeber. She had a trust, which this account was transferred to prior to her passing.
This is an IRA that is part of an AXA Annuity. This was originally setup with a 'death benefit' - which is now far lower than the current market value of the policy.
My/her lawyers sent a summary of funds to me, showing the death benefit as the amount that would pay out for this policy. That has me worried.
To put some random numbers to this: Say her death benefit was 300,000 and the current market value of the IRA/Annuity is 500,000. The 500,000 is what pays out.... RIGHT? My understanding was that the death benefit is a thing setup in case the market tanks and you lose all of your original investment. Not something that would even come into play if the current value is higher than the benefit.
Any thoughts would be appreciated!
PS - The same annuity has a line saying: Protected Living Benefit Base Amount, which is even higher (say 550,000 to continue from the example). What does this mean?
Most Popular Reply
It is quite unusual that the death benefit is that much lower than the account value. The benefit base, also known as an income base, is generally an amount upon which a future income stream is based. It’s a type of “living benefit” that can be added to certain contracts, generally for the account owner who is also generally the annuitant. This value is almost always initially equal to the starting amount of the contract, can increase in value - often has what’s known as a “guaranteed step-up” or “roll-up,” and is a figure upon which income streams are based on in retirement.
For example, let’s say she started the contract at age 60 with $300,000, added this optional living benefit that has a - let’s say 7% - annual roll-up for the first 10 contract years, and provides 5% for life at age 65.
Contract value is $300,000 and, assuming it’s a variable contract with variable investments, this number could go up or down.
Benefit Base is also initially $300,000 but this number can only go up, and in this example, it gets 7% annual rollups for the first 10 years (typically simple interest), so it goes up by $21,000/year.
Let’s ignore the death benefit for now (although, this would likely also start at the initial $300,000).
Fast forward 5 years, she’s 65 and wants income, and let’s say the market tanks. The $300,000 contract value (aka account value) is now worth $150,000. The benefit base is now worth $405,000 (the initial $300,000 + $21,000/year x 5 years). She could now generate a (presumably, depending on the actual rider) lifetime income stream of 5% of this $405,000, which is $20,250/year to supplement other retirement income sources. This is possible, due to the rider, and even if the account value drops to zero, this income stream would likely continue for her lifetime.
Obviously without the rider and with the account value dropping to $150,000, she wouldn’t be able to generate this level of income without the rider (hence their fancy marketing name for the rider).
Bottom Line: this rider is not likely something you, as the beneficiary, will be able to use. Depending on your needs and goals, you probably want to look into inherited IRA options with different companies. AXA is an insurance company and much of their retirement products are annuity focused, which may or may not be what you need / are looking for. Hope that helps a bit.
My condolences on your loss.