knowledge topics
Annuities
KNOWLEDGE EXPECTED OF: Both CFP® Professionals and QAFPTM Professionals
- Define an annuity.
- Define 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
- Life annuities
- 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 at the time of purchase 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)
- Explain the relationship between the variables that may impact the income provided by an annuity and the payment amount.
- Explain the treatment of each type of annuity upon the death of the annuitant.
- 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.
- 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
- Explain how each of the factors may impact the suitability of an annuity, such as:
- 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.
Glossary of Verbs (mouse over to see definition)
-
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
-
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 judgement through careful study
-
Interpret
To give the meaning of / to construe or understand / to translate orally
Read more about the Taxonomy used in the FP-BoK
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