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 'substandard age' rating in structured settlement annuity pricing?
Answer: An actuarial adjustment that rates an impaired claimant as if they were older, reducing annuity cost
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.
What does 'annuity certain' mean in structured settlement planning?
Answer: An annuity that pays for a fixed period regardless of the annuitant's survival
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.
What is the effect of multiple life insurers funding a single structured settlement?
Answer: It diversifies insolvency risk by spreading payments among multiple highly rated carriers
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.
Under what circumstances can the claimant's estate receive remaining structured settlement payments after the claimant's death?
Answer: Only when the payments were guaranteed for a period that has not yet expired
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.
What is 'constructive receipt' and why does it matter in structured settlements?
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
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.
Which of the following would cause a structured settlement to lose its income-tax-free status?
Answer: Allowing the claimant to accelerate, commute, or assign payments at will
If the claimant has the ability to accelerate or transfer payments, the IRS may find constructive receipt, causing all payments to become taxable income.