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

During the accumulation phase, premiums are deposited and grow tax-deferred; the distribution (payout) phase begins when the owner starts receiving income payments from the contract.

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

A life-only (straight life) annuity provides the highest monthly payment because payments cease at the annuitant's death with nothing passing to beneficiaries, eliminating the cost of survivor benefits.

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

A systematic withdrawal strategy involves taking periodic, scheduled withdrawals from a deferred annuity contract without formally annuitizing, allowing the remaining balance to continue growing tax-deferred.

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 exclusion ratio for a non-qualified annuity divides the investment in the contract (basis) by the expected return, determining what fraction of each annuity payment represents a tax-free return of after-tax premiums and what fraction is taxable income.

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

RMDs apply to qualified annuities (those held inside IRAs or employer-sponsored retirement plans) because these accounts are funded with pre-tax dollars subject to IRS distribution requirements starting at age 73.

(CAS) Certified Annuity Specialist Practice Test

(CAS) Certified Annuity Specialist Practice Test

CAS CAS Annuity Distribution and Payout Strategies