If a contract owner or annuitant dies in the accumulation phase, a deferred annuity contract will usually provide a death benefit rider protecting the account and payable to a named beneficiary. Sometimes the contract may name a new annuitant to take the place of the deceased annuitant. The contractual payout of this benefit varies by policy and can be payable as a lump-sum payment or as periodic annuity payments.

Variable annuity contracts have traditionally offered a guaranteed minimum death benefit (GMDB) during the accumulation period that is generally equal to the greater of (a) the contract value at death or (b) premium payments minus any prior withdrawals. The GMDB gives contract owners the confidence to invest in the stock market, important in keeping up with market inflation, as well as the security to know their families will be protected against financial loss in the event of an untimely death.

The value and importance of the GMDB is proven when considering the market downturn between 2001 and 2003, where variable annuity investor beneficiaries received death benefits worth $2.8 billion more than the value of the annuities, making up for short-term market losses.

Over the past ten years, many insurers have offered enhanced GMDBs. The different types of enhanced GMDBs are described below, some of which have additional associated charges.

Contract Anniversary Value or Ratchet
Some life insurance companies offer death benefits that step up or increase based on pre-determined criteria. Called contract anniversary value or ratchet, these enhanced GMDBs are equal to the greater of (a) the contract value at death, (b) premium payments minus prior withdrawals, or (c) the contract value on a specified prior date. The specified date could be a prior contract anniversary date, such as the date at the end of every seven-year period, every anniversary date, or even more often. A ratchet GMDB locks in the contract's gains on each of the dates specified.

Initial Purchase Payment with Interest or Rising Floor
Some insurers offer a rising floor GMDB that is equal to the greater of (a) the contract value at death or (b) premium payments minus prior withdrawals, increased annually at a specified rate of interest. In some cases, a ratchet and a rising floor may be available within the same contract. Some contracts offer a choice of a ratchet or a rising floor.

Enhanced Earnings Benefits
Not all variable annuity death benefits are associated with protection against falling markets. Some more recent variable annuity contracts offer enhanced earnings benefits (EEB) that provide a separate death benefit to help offset federal income taxes payable upon death on any gains in the contract. With this feature, beneficiaries receive not only the base death benefit amount, but also an additional amount that is usually equal to a percentage of the contract's earnings at death (e.g., 40%).