Benefit Base
A bookkeeping value used to calculate guaranteed rider income; generally not an amount available on surrender.
A benefit base is an accounting figure inside an annuity contract used solely to calculate guaranteed rider values, most often the annual lifetime withdrawal amount. It is not cash, not a surrender value, and in most contracts not a death benefit. Two ledgers exist side by side: the account value, which is real money, and the benefit base, which is a calculation input.
- —A benefit base cannot be withdrawn as a lump sum or exchanged into another contract.
- —Roll-up credits to the base commonly stop at a stated year, a stated age, or the first withdrawal.
- —Many contracts assess the rider charge against the benefit base, so a larger base means a larger charge.
- —The benefit base is generally forfeited on a 1035 exchange - one of the biggest hidden costs of replacing a contract.
Also labelled income base, income account value, or roll-up value. It may grow at a stated roll-up rate during deferral, which is why it often appears well above the account value on a statement.
Mistaking the benefit base for real, withdrawable money is the single most common misreading of an annuity statement. The account value is the amount available on surrender, less any remaining surrender charge.
How a benefit base grows
Three mechanisms are common, sometimes in combination. A simple or compound roll-up credits a stated percentage each year during the roll-up period. A step-up or ratchet resets the base to the account value on a contract anniversary if the account value is higher. A premium bonus can add a stated percentage to the base at issue.
None of these mechanisms puts money into the account value. That distinction is the single most important fact about a benefit base and the one most often lost between an illustration and an owner's understanding of it.
What reduces a benefit base
Excess withdrawals - amounts above the guaranteed annual withdrawal - are the main risk. Most contracts reduce the base proportionally rather than dollar-for-dollar, which means a withdrawal of a given size can cut the base by considerably more than that amount when the account value is lower than the base.
| Item | Illustrative figure |
|---|---|
| Benefit base before | 200,000 |
| Account value before | 100,000 |
| Excess withdrawal | 10,000 (10% of account value) |
| Proportional reduction applied to base | 10% |
| Benefit base after | 180,000 |
Frequently asked questions
- Can I cash out my benefit base?
- No. The benefit base exists only to calculate guaranteed rider values. A surrender pays the account value less any surrender charge and adjustment.
- Does my beneficiary receive the benefit base?
- Usually not. Standard death benefits pay the account value. A separate enhanced death benefit rider is required for a death benefit tied to a higher base, and it carries its own charge and terms.
- Does the benefit base transfer in a 1035 exchange?
- No. The base belongs to the contract that created it and is forfeited when that contract is surrendered or exchanged. Accrued base value is one of the most significant things given up in a replacement.
- Why is my benefit base higher than my account value?
- Because roll-up credits accrue to the base regardless of what the account value does, while the account value bears actual credits and rider charges. A large gap between the two is normal in contracts with long roll-up periods, and it is not money in the contract.