K owns a Variable annuity with an assumed interest rate of 4%. If actual performance of the separate accounts is 4%, the effect on this month’s income benefit check will be the

K owns a Variable annuity with an assumed interest rate of 4%. If actual performance of the separate accounts is 4%, the effect on this month’s income benefit check will be the

• A. Be cancelled
• B. The same
• C. Increase
• D. Decrease

Answer: (D)

The income benefit rider uses an income base that grows at the assumed interest rate. The actual performance of the separate accounts influences the account value, but the monthly income check is determined by the growth credited to the income base. When actual performance exactly equals the AIR, there is no extra credit beyond the guaranteed rate, so this month’s income benefit check remains the same as the previous month. If performance had exceeded AIR, the check would increase; if it had fallen short, it would decrease.

The income benefit rider uses an income base that grows at the assumed interest rate. The actual performance of the separate accounts influences the account value, but the monthly income check is determined by the growth credited to the income base. When actual performance exactly equals the AIR, there is no extra credit beyond the guaranteed rate, so this month’s income benefit check remains the same as the previous month. If performance had exceeded AIR, the check would increase; if it had fallen short, it would decrease.