Step 3 – Determining Actuarial Soundness

The last step in the process, found back on the Actuarially Sound Determination (PDF) handout, is to compare the total annuity payout (Step 2) to the annuitized cash value (Step 1). If the:

Total annuity payout is ≥ the annuitized cash value:

The annuity is actuarially sound. This means that the applicant and thier spouse are expecting to get out of the annuity what they put into it.

Total annuity payout is < the annuitized cash value:
The annuity is not actuarially sound and an uncompensated asset transfer has occurred. The amount of the uncompensated transfer is the difference between the annuitized cash value and the total annuity payout.

Example:

Stephanie is requesting MA-LTC. She is the owner and payee of an immediate annuity she purchased 13 months ago when she was 63 years of age. The cash value of annuitized funds was $82,000. Stephanie receives a $500 payment each month, which she has received for 12 months. The total payout amount of Stephanie’s annuity is $133,920 based on her life expectancy ($6,000 per year X 22.32 years).

Action:

Consider Stephanie’s annuity to be actuarially sound. The total annuity payout of $133,920 is greater than the annuitized cash value of $82,000.

To Do: Answer Questions 3 and 4 found on the Actuarially Sound Determination Activity (PDF) handout. Return to this page to check your answers.

Question 3.

Charles’ annuity is not actuarially sound. The total annuity payout ($199,285.00) is less than the cash value annuitized ($200,000).

Question 4.

The uncompensated value is $715.00 ($200,000 – 199,285.00). Use this figure to determine the transfer penalty.

Page 8

Transfer Evaluation - Actuarially Sound Determination

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