Which of the following statements is (are)true with respect to the cash 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

Quizplus · Accepted Answer

I is true because the taxable portion of any distribution from an annuity is subject to federal and state income taxes.

II is also true because those who are in poor health or those who have a shorter life expectancy are more likely to take cash than to annuitize the funds. This results in adverse selection for the insurer because they are left with a pool of policyholders who are healthier, and therefore less likely to die and collect their annuity income.

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