Case Analysis & Practical Application Flashcards

A 68-year-old widow with $400,000 in CDs asks about income she cannot outlive. She has no pension and Social Security covers only half her expenses. Which annuity strategy best addresses her primary concern?

Answer: Purchase a single-premium immediate annuity (SPIA) for lifetime income

A SPIA converts a lump sum into guaranteed lifetime income immediately, directly solving longevity risk for someone with an income gap.

A client's fixed indexed annuity has a 5% participation rate cap and the index gained 18% this year. What is the client's credited interest?

Answer: 5%

A cap of 5% means the maximum credited interest is 5% regardless of how much higher the index performs.

During suitability review, you discover a 78-year-old prospect wants to surrender a life insurance policy to fund a 10-year deferred annuity. What is the most critical concern?

Answer: The annuity may not match her time horizon given her age and life expectancy

A 10-year deferral period may extend beyond a 78-year-old's reasonable life expectancy, making the product potentially unsuitable.

A married couple, both age 62, want annuity income that continues as long as either spouse lives. Which payout option is most appropriate?

Answer: Joint and 100% survivor annuity

A joint and 100% survivor annuity continues full payments until the last surviving spouse dies, protecting both individuals.

A client in the 32% tax bracket wants to exchange his low-yield fixed annuity for a higher-yield product. Which tax provision allows this without triggering immediate taxation?

Answer: IRC Section 1035 exchange

A 1035 exchange allows tax-free transfer of one annuity contract to another annuity, preserving the tax-deferred status of accumulated gains.

A 55-year-old client withdraws $30,000 from his non-qualified deferred annuity that has $50,000 in earnings. He has not annuitized. How is this taxed under LIFO?

Answer: $30,000 is ordinary income and subject to a 10% penalty

Non-annuitized non-qualified annuity withdrawals follow LIFO, so earnings come out first; the full $30,000 is taxable as ordinary income plus a 10% early withdrawal penalty applies before age 59½.

A prospect asks why annuity rates differ between two carriers offering seemingly identical fixed annuity products. What is the primary underlying factor?

Answer: The financial strength and investment portfolio of the issuing insurer

Annuity crediting rates reflect the insurer's ability to earn returns on its general account investments, which varies by carrier quality and portfolio composition.