Annuities and Insurance Products in Retirement Flashcards

A married couple uses a 'joint and 100% survivor' annuity payout option. How does this compare to a 'joint and 50% survivor' option at inception?

Answer: The 100% survivor option provides lower initial payments

A joint and 100% survivor option provides lower initial monthly payments than a joint and 50% survivor option because the insurer must fund full payments for both lifetimes.

A fixed indexed annuity (FIA) credits interest based on an index with a 'participation rate' of 70% and no cap. If the index returns 10%, what is the credited rate?

Answer: 7%

With a 70% participation rate and no cap, the FIA credits 70% of the 10% index gain, resulting in a 7% credited interest rate.

Under HIPAA, a long-term care insurance policy qualifies as a 'tax-qualified' contract if it meets which of the following requirements?

Answer: It must require inability to perform at least 2 of 6 ADLs or cognitive impairment

HIPAA requires tax-qualified LTC policies to trigger benefits when the insured cannot perform at least 2 of 6 activities of daily living (ADLs) or has severe cognitive impairment.

Which type of life insurance is most commonly used in a retirement income plan to provide both a death benefit and a tax-advantaged accumulation vehicle?

Answer: Permanent cash value life insurance

Permanent cash value life insurance (whole, universal, or variable universal life) builds tax-deferred cash value that can supplement retirement income while maintaining a death benefit.

A client exchanges an old annuity for a new one under a 1035 exchange. Which outcome correctly describes the tax treatment?

Answer: The exchange is tax-free and the cost basis carries over to the new contract

A Section 1035 exchange allows a tax-free transfer between annuity contracts, with the original cost basis carrying over to the new contract.

Which of the following best describes a 'hybrid' long-term care insurance product linked to a life insurance policy?

Answer: A life insurance policy with an accelerated benefit rider for long-term care expenses

Hybrid LTC products are life insurance policies with an accelerated death benefit rider that allows the policyholder to use the death benefit to pay for qualifying long-term care expenses.

A retiree's immediate annuity payments exceed the exclusion ratio calculation over time. What happens after the 'expected return' is fully recovered?

Answer: All subsequent payments are fully taxable as ordinary income

Once the investment in the contract is fully recovered through the exclusion ratio, 100% of all subsequent annuity payments are taxable as ordinary income.