Which of the following statements is (are)true with respect to the cash (lump sum)annuity settlement option?
I.The taxable portion of the distribution is subject to federal and state income taxes.
II.The option results in adverse selection against the insurer as those in poor health are more likely to take cash than to annuitize the funds.

Question

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Statement I is true because the taxable portion of any payment made to an individual or party is subject to federal and state income taxes. The cash (lump sum) annuity settlement option is no exception to this rule. 
Statement II is true because those in poor health are more likely to take cash rather than to annuitize the funds. Adverse selection is a phenomenon that occurs when those with a higher risk of loss are more likely to take certain actions than those with a lower risk. In this case, those in poor health are more likely to take cash than to annuitize the funds, which means that they are more likely to die earlier and therefore, the insurance company may lose out on some of the expected profits.

Which of the Following Statements Is (Are)true with Respect to the Cash