Annuities and Funding Mechanisms Flashcards
6 cards from real Structured Settlements practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.
Read the first 6 Annuities and Funding Mechanisms flashcards as text
What is a 'structured settlement annuity' as distinguished from other annuities?
Answer: A specific annuity contract issued to fund periodic payments in a tort or workers' compensation settlement, qualifying for favorable tax treatment
A structured settlement annuity is a specialized contract issued to a qualified assignee or defendant to fund tax-favored periodic payments arising from a personal physical injury settlement.
Which of the following payment features can be included in a structured settlement annuity?
Answer: Cost-of-living adjustments (COLA) tied to CPI
Fixed annuities for structured settlements may include a COLA provision that increases payments annually by a set percentage or tied to the CPI.
What is a 'split-funded' structured settlement?
Answer: A settlement that uses both an annuity for future periodic payments and an immediate cash component
A split-funded settlement combines a lump-sum cash payment at closing with a structured annuity providing periodic payments, addressing both immediate and long-term needs.
What is the significance of the 'free-look' period for annuity contracts used in structured settlements?
Answer: It allows the qualified assignee to review the annuity contract terms before finalizing the purchase
The free-look period gives the purchaser (qualified assignee) time to review the annuity contract for accuracy before it becomes irrevocable.
What is 'mortality risk' in the context of life-contingent structured settlement annuities?
Answer: The risk assumed by the life insurer that the claimant will live longer than expected, requiring more payments
With life-contingent payments, the insurer bears mortality risk: if the claimant lives longer than actuarially predicted, the insurer must pay more than anticipated.
Which document formally transfers the periodic payment obligation from the defendant to the qualified assignee?
Answer: The qualified assignment agreement
The qualified assignment agreement is the contract by which the defendant (or its insurer) transfers its periodic payment obligation to the qualified assignee under IRC §130.