CAS CAS Annuity Distribution and Payout Strategies

Question 1

What is the key difference between the 'accumulation phase' and the 'distribution phase' of an annuity?

Accepted Answer

Money grows tax-deferred during accumulation and income payments are made during distribution

Answer

Premiums are paid during distribution and income is received during accumulation

Answer

The distribution phase is only available in variable annuities

Answer

Surrender charges apply only during the distribution phase

Question 2

Which annuity payout option provides the highest monthly income but offers no residual benefit to beneficiaries after the annuitant's death?

Accepted Answer

Life only (straight life)

Answer

Joint and 100% survivor

Answer

Life with 10-year period certain

Answer

Installment refund

Question 3

What is a 'systematic withdrawal' strategy in the context of an annuity distribution?

Accepted Answer

Taking regular, predetermined withdrawals from the annuity over time without annuitizing

Answer

Annuitizing the contract for lifetime income

Answer

Using the GMWB rider to generate income

Answer

Converting the deferred annuity to an immediate annuity

Question 4

For a non-qualified annuity, the exclusion ratio is used to determine:

Accepted Answer

How much of each payment is taxable as ordinary income vs. tax-free return of basis

Answer

The percentage of funds excluded from Required Minimum Distribution rules

Answer

The portion of the contract value excluded from estate taxes

Answer

How much can be withdrawn annually tax-free

Question 5

Required Minimum Distributions (RMDs) generally apply to which type of annuity?

Accepted Answer

Qualified annuities held inside IRAs or employer retirement plans

Answer

Non-qualified deferred annuities

Answer

Immediate income annuities funded with after-tax dollars

Answer

All fixed annuities regardless of tax status

Question 6

Which distribution option would best suit a client who needs lifetime income but also wants to ensure at least their full premium is returned to heirs if they die early?

Accepted Answer

Life with installment refund

Answer

Life only annuity

Answer

Period certain only annuity

Answer

Joint and 50% survivor annuity