Guaranteed Minimum Death Benefit (GMDB) in Segregated Funds Guide
The guaranteed minimum death benefit (GMDB) is the promise inside a segregated fund contract that, on the death of the annuitant, the beneficiary receives at least a stated percentage of deposits — typically 75% to 100% — regardless of how the markets performed.
If the market value at death is higher than the guaranteed amount, the beneficiary gets the market value. The guarantee is a floor, not a ceiling.
Why it matters on the LLQP exam
The GMDB is the most-tested single feature of segregated funds. The mechanics the exam wants:
- Deposit-based, not value-based — the guarantee is calculated on net deposits (deposits minus proportional withdrawals), not on the original investment plus growth.
- Withdrawals reduce the guarantee — taking money out proportionally reduces both the maturity and death benefit guarantees. Classic trap: a client withdraws 20% of the fund, then dies — the guarantee applies to the reduced base.
- Paid to the named beneficiary — bypasses the estate and probate, which is why seg funds are sold as estate-planning tools.
- Only at death (or maturity) — surrendering the contract mid-term pays market value only. The guarantee does nothing for a living surrender.
Contracts are often described as "75/100" (75% maturity / 100% death) or "100/100" — read the pairing carefully in scenarios.
Example question
A client deposits $100,000 into a 75/100 segregated fund. Market value at death is $82,000. The beneficiary receives:
- $75,000
- $82,000
- $100,000
- $82,000 minus surrender charges
Answer: C — the death guarantee pays the greater of 100% of deposits or market value; here the $100,000 floor wins.
Connect this to the reset provision and segregated fund basics in the segregated funds hub.