Annuity

KNOWLEDGE EXPECTED OF: QAFP® Professionals

Highest Knowledge Level: Understanding

Knowledge Levels and Associated Verbs


Awareness
The state of being aware that something exists / to have familiarity with a particular activity or subject
Understanding
To comprehend the general relationship of particulars / to have an expertise with how something works
Application
Ability to put information to use / to use knowledge for relevant, practical purposes
Evaluation
To judge or conclude by utilizing data / a systematic determination of something’s worth or significance
Define
To state exactly the meaning of
Identify
To be aware of / to recognize and correctly name / to locate an appropriate resource
Explain
To make clear the meaning of / to describe something in more detail or reveal relevant facts or ideas related to it
Determine
To ascertain / to come to a decision, such as by investigation or reasoning
Compare
To note the similarities and differences between two or more things
Estimate
To determine an approximate value for
Calculate
To find the value using mathematics
Convert
To change from one form or purpose to another
Evaluate
To reach a conclusion or make a through careful study
Interpret
To give the meaning of / to construe or understand / to translate orally

Hold cursor over or click on each term to read its definition.

  • Define an annuity. 
  • Explain parties to an annuity, such as:
    • Annuity provider
    • Plan owner
    • Annuitant
  • Define types of annuities, such as:
    • Life annuities
      • Single life
      • Joint life
      • Single life with a guaranteed period
      • Joint life with a guaranteed period
      • Impaired
    • Term-certain annuities
      • Temporary
  • Identify terms that may be used to describe an annuity based on the source of capital used to purchase it, such as:
    • Non-registered annuities
    • Registered annuities 
  • Identify which annuities may only be sold by insurance companies. 
  • Explain permissible sources of capital for each type of annuity, such as:
    • Registered funds
    • Non-registered funds
  • Identify types of annuities that may be purchased using registered funds, such as:
    • Life annuity
    • Term certain annuity with a term equal to the number of years until the annuitant (or their spouse, if younger) turns 90 years old.
  • Identify that the plan owner and the annuitant must be the same person for a registered annuity. 
  • Identify factors that may affect the amount of income provided by an annuity, such as:
    • Value of invested capital
    • Interest rate assumptions
    • Annuitant’s age
    • Annuitant’s sex
    • Guarantee period of payments
    • Payment options (fixed, variable, indexed)
    • Annuitant’s health (for impaired annuities)
  • Explain the relationship between the variables that may impact the income provided by an annuity and the payment amount. 
  • Explain the tax treatment of registered annuities.
    • When receiving income from the annuity
    • Upon the death of the annuitant
  • Explain the tax treatment of non-registered annuities.
    • When receiving income from a non-prescribed annuity
    • When receiving income from a prescribed annuity
    • Upon death of the annuitant
  • Explain the requirements for an annuity to qualify for prescribed tax treatment. 

KNOWLEDGE EXPECTED OF: CFP® Professionals

Highest Knowledge Level: Evaluation

Knowledge Levels and Associated Verbs


Awareness
The state of being aware that something exists / to have familiarity with a particular activity or subject
Understanding
To comprehend the general relationship of particulars / to have an expertise with how something works
Application
Ability to put information to use / to use knowledge for relevant, practical purposes
Evaluation
To judge or conclude by utilizing data / a systematic determination of something’s worth or significance
Define
To state exactly the meaning of
Identify
To be aware of / to recognize and correctly name / to locate an appropriate resource
Explain
To make clear the meaning of / to describe something in more detail or reveal relevant facts or ideas related to it
Determine
To ascertain / to come to a decision, such as by investigation or reasoning
Compare
To note the similarities and differences between two or more things
Estimate
To determine an approximate value for
Calculate
To find the value using mathematics
Convert
To change from one form or purpose to another
Evaluate
To reach a conclusion or make a through careful study
Interpret
To give the meaning of / to construe or understand / to translate orally

Hold cursor over or click on each term to read its definition.

  • Define an annuity. 
  • Explain parties to an annuity, such as:
    • Annuity provider
    • Plan owner
    • Annuitant
  • Define types of annuities, such as:
    • Life annuities
      • Single life
      • Joint life
      • Single life with a guaranteed period
      • Joint life with a guaranteed period
      • Impaired
    • Term-certain annuities
      • Temporary
  • Identify terms that may be used to describe an annuity based on the source of capital used to purchase it, such as:
    • Non-registered annuities
    • Registered annuities 
  • Identify which annuities may only be sold by insurance companies. 
  • Explain permissible sources of capital for each type of annuity, such as:
    • Registered funds
    • Non-registered funds
  • Identify types of annuities that may be purchased using registered funds, such as:
    • Life annuity
    • Term certain annuity with a term equal to the number of years until the annuitant (or their spouse, if younger) turns 90 years old.
  • Identify that the plan owner and the annuitant must be the same person for a registered annuity. 
  • Identify factors that may affect the amount of income provided by an annuity, such as:
    • Value of invested capital
    • Interest rate assumptions
    • Annuitant’s age
    • Annuitant’s sex
    • Guarantee period of payments
    • Payment options (fixed, variable, indexed)
    • Annuitant’s health (for impaired annuities)
  • Explain the relationship between the variables that may impact the income provided by an annuity and the payment amount. 
  • Explain the tax treatment of registered annuities.
    • When receiving income from the annuity
    • Upon the death of the annuitant
  • Explain the tax treatment of non-registered annuities.
    • When receiving income from a non-prescribed annuity
    • When receiving income from a prescribed annuity
    • Upon death of the annuitant
  • Explain the requirements for an annuity to qualify for prescribed tax treatment.
Additional Knowledge Expected of CFP Professionals
  • Explain the treatment of each type of annuity upon the death of the annuitant.
  • Compare the tax treatment of prescribed and non-prescribed annuities, specifically:
    • Level of tax over time
    • Level of after-tax income over time
    • Total taxable portion over lifetime of annuity
  • Determine how each of these factors may impact the suitability of an annuity:
    • Time horizon
    • Volatility
    • Risk tolerance
    • Investment objective
    • Financial situation
    • Personal situation
    • Income
    • Liquidity
    • Control
    • Tax impact
    • Investment management process
    • Economic cycle
    • Cost
    • Historical performance
    • Performance expectations
  • Evaluate how each of the factors may impact the suitability of an annuity.
  • Explain for whom an annuity may be suitable.
Arrow Left previous / Segregated Funds
next / Hedge Funds Arrow Right