KNOWLEDGE EXPECTED OF: Both CFP® Professionals and QAFPTM Professionals
- Define an annuity.
- Define parties to an annuity, such as:
- Annuity provider
- Plan owner
- Define types of annuities, such as:
- Life annuities
- Single life
- Joint life
- Single life with a guaranteed period
- Joint life with a guaranteed period
- Term certain annuities
- 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
- Risk tolerance
- Investment objective
- Financial situation
- Personal situation
- Tax impact
- Investment management process
- Economic cycle
- 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)
To state exactly the meaning of
To be aware of / to recognize and correctly name / to locate an appropriate resource
To make clear the meaning of / to describe something in more detail or reveal relevant facts or ideas related to it
To note the similarities and differences between two or more things
To determine an approximate value for
To find the value using mathematics
To change from one form or purpose to another
To reach a conclusion or make a judgement through careful study
To give the meaning of / to construe or understand / to translate orally