Structured Settlements Annuities and Funding Mechanisms 3

Question 1

What is a 'substandard age' rating in structured settlement annuity pricing?

Accepted Answer

An actuarial adjustment that rates an impaired claimant as if they were older, reducing annuity cost

Answer

A substandard age (or rated age) treats an impaired claimant as actuarially older, reflecting reduced life expectancy and thereby lowering the premium needed to fund life-contingent payments.

Question 2

What does 'annuity certain' mean in structured settlement planning?

Accepted Answer

An annuity that pays for a fixed period regardless of the annuitant's survival

Answer

An annuity certain (or period certain) pays for a defined number of years regardless of whether the annuitant is alive, with remaining payments going to a beneficiary.

Question 3

What is the effect of multiple life insurers funding a single structured settlement?

Accepted Answer

It diversifies insolvency risk by spreading payments among multiple highly rated carriers

Answer

Using more than one life insurer to fund portions of a structured settlement spreads the insolvency risk, providing added security to the claimant over long payment periods.

Question 4

Under what circumstances can the claimant's estate receive remaining structured settlement payments after the claimant's death?

Accepted Answer

Only when the payments were guaranteed for a period that has not yet expired

Answer

Guaranteed (period-certain) payments continue to the claimant's designated beneficiary or estate for the remainder of the guaranteed period after the claimant's death.

Question 5

What is 'constructive receipt' and why does it matter in structured settlements?

Accepted Answer

It is a tax doctrine holding that income is taxable when the claimant has the right to receive it, even if not yet received — structured settlements are designed to avoid it

Answer

Constructive receipt means the IRS treats income as received when the taxpayer has an unrestricted right to it; structured settlements preserve tax-free status by ensuring the claimant never has control over the funds.

Structured Settlements Practice Test

Structured Settlements Practice Test

Structured Settlements Annuities and Funding Mechanisms 3