Death Benefit Rider

Basic Death Benefit Rider: Most carriers will give the beneficiary of the account value when the annuitant passes.

Some insurance carries will have a death benefit rider that you can purchase. This will increase a phantom account value by 7-8% simple interest every year all the way until the end of their lives. Consequently, this is probably purchased because the owner or annuitant cannot purchase life insurance and does not need income from this acquired money. 

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How the Death Benefit Rider Phantom Account Actually Works

The “phantom account” terminology can be confusing, so it helps to understand what it means in practice. This separate account value exists purely for calculation purposes — it is not money you can withdraw as a lump sum or use for income. Instead, it grows at a guaranteed simple interest rate, typically between 7% and 8% annually, and the accumulated value is paid directly to your named beneficiary upon your death. The original premium is the starting point, and the rider tracks growth from that date forward regardless of market conditions or actual contract performance.

Simple interest, rather than compound interest, is an important distinction here. On a $100,000 premium with an 8% simple interest rider, the phantom account grows by $8,000 each year — not $8,000 plus interest on prior gains. Over 20 years, that produces a $260,000 death benefit, which can still represent meaningful legacy value for beneficiaries who would otherwise receive only the contract’s accumulated cash value.

These riders typically carry an annual fee, often ranging from 0.25% to 0.75% of the contract value, which reduces your actual account growth slightly. Comparing that cost against the guaranteed death benefit increase is essential before adding this rider, particularly if your health situation or estate planning goals have changed since the annuity was originally purchased.