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- Title
The Effect of the Real Option to Transfer on the Value of Guaranteed Minimum Death Benefits.
- Authors
Ulm, Eric R.
- Abstract
Variable annuity contracts frequently have many options and option-like features embedded in the contracts. Some are obvious, such as guaranteed minimum death benefits (GMDBs), while others are less obviously option-like. In this article, we consider the effect of the real option to transfer funds between fixed and variable accounts. If a GMDB rider is considered in isolation, it is sometimes in the policyholder's interest to transfer to the fixed fund if the fixed fund earns less than the variable fund in a risk-neutral world. On the other hand, the option to transfer will not be used if the entire annuity and rider are considered together.
- Subjects
VARIABLE annuities; POLICYHOLDERS; VARIABLE life insurance policies; SURVIVORS' benefits; FIXED annuities; INSURANCE policies; RIDERS (Contracts)
- Publication
Journal of Risk & Insurance, 2006, Vol 73, Issue 1, p43
- ISSN
0022-4367
- Publication type
Article
- DOI
10.1111/j.1539-6975.2006.00165.x