Options and rider benefits

Ermanno Pitacco

7.1 INTRODUCTION: PACKAGING BENEFITS

Life contingency products can be looked at as packages of guarantees and options, and this perspective is, of course, also appropriate for life annuities.

As noted in Section 6.1, some guarantees are embedded in life contingency products, and in life annuities in particular, in the sense that no specific customer choice or action is needed in order to enable the guarantees themselves. Alternatively, further guarantees may be added via the customer’s specific choices.

Variable annuity products offer interesting examples of guarantees added according to customer’s choices, as seen in Section 6.5. However, it is worth noting that the addition of benefits (and hence guarantees) to the basic income benefit also belongs to the tradition of conventional life annuities. The exercise of the options listed in Figure 7.1 actually results in the addition of rider benefits to the basic annuity benefit.

In this chapter we describe the benefits added via exercise of the four options, with special attention on the long-term care (LTC) uplift option that paves the way for a significant enlargement of the life annuity context by encompassing health