CAS Annuity Distribution and Payout Strategies Flashcards
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What is an 'annuity ladder' strategy?
Answer: Purchasing a series of deferred or immediate annuities that begin paying out at different future dates
An annuity ladder involves purchasing multiple annuities (often deferred income annuities or DIAs) that start paying out at different ages or future dates, providing increasing income streams as the client ages.
A Deferred Income Annuity (DIA) is best described as:
Answer: A contract where a premium is paid now and guaranteed income begins at a specified future date, often years away
A DIA (also known as a longevity annuity) accepts a lump-sum or series of premiums and promises to begin guaranteed income payments at a specified future date, making it ideal for funding late-retirement income.
A Qualified Longevity Annuity Contract (QLAC) allows an IRA or 401(k) owner to:
Answer: Use a portion of qualified retirement funds to purchase a DIA that defers RMDs on those funds until age 85
A QLAC allows an IRA or 401(k) owner to allocate up to specified IRS limits (currently $200,000) into a deferred income annuity, with income starting no later than age 85, and that amount is excluded from RMD calculations until payments begin.
When evaluating an annuity's payout for a client, the 'payout rate' represents:
Answer: The annual income payment divided by the total premium, expressed as a percentage
The payout rate is calculated by dividing the annual income payment by the total premium paid into the annuity, expressed as a percentage, and helps clients compare the income efficiency of different annuity options.
What is the primary advantage of using a 'life with cash refund' payout option over a 'life only' option?
Answer: It guarantees that if the annuitant dies before recovering their full premium, a lump-sum refund goes to beneficiaries
A life with cash refund option guarantees that if the annuitant dies before receiving total payments equal to the premium paid, the beneficiary receives a lump-sum payment for the difference, whereas life-only pays nothing at death.
In a 'split-annuity' strategy, how are two annuity contracts typically used together?
Answer: An immediate annuity provides current income while a deferred annuity grows to restore the original principal by the end of the income period
In a split-annuity strategy, part of the capital funds an immediate annuity for current income, while the remaining capital goes into a deferred annuity growing tax-deferred at a rate calculated to restore the original principal by the time the immediate annuity is exhausted.