Adèle retired a few months ago.

Question

Adèle retired a few months ago. She sold some of her assets and would like to use the funds to take out a term annuity to increase her retirement income. Adèle brings a $300,000 cheque to Germain, her financial security advisor, and wants to begin receiving lifetime guaranteedbenefits in one month with the right to use capital in the event of an emergency. When Germain tells her about alienating capital, the capitalization phase, and the payment phase, Adèle becomes confused and asks for clearer explanations. What can Germain say to help Adèle understand?

Accepted Answer

A. If her capital is alienated now, i.e., if ownership of the money is transferred to the insurer, the insurer will be able to guarantee all the conditions of the annuity. Since the first benefit will be paid in a month, the contract will automatically be in the payment phase

Answer

B. The alienation will allow Adèle to keep ownership of the capital and use it in the event of an emergency. The capitalization phase will enable the insurer to grow the capital before paying the annuity

Answer

C. The contract will be a deferred annuity contract for one month and will be in the accumulation phase until the insurer takes possession of the $300,000 in capital. For benefits to be paid, the contract will enter the payment phase

Answer

D. To grow the transferred capital and pay the annuities as planned, the contract will be an immediate annuity contract in the capitalization phase until the annuity’s guaranteed phase expires. The contract will then enter the payment phase

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IFSE Institute Life License Qualification Program LLQP Question # 70 Topic 7 Discussion

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