37. A widow age 70 has $250,000 in savings that she wants to distribute to her 5 grandchildren at her death. She also has a need for income. Which of the following is the MOST suitable recommendation?
Answer: A
Buy an immediate income annuity for $250,000 with a cash refund settlement option and name the grandchildren as beneficiaries.
This option provides the widow with a stream of income while ensuring that her grandchildren will receive the remaining funds after her death, making it a balanced solution for her financial needs.
A) Buy an immediate income annuity for $250,000 with a cash refund settlement option and name the grandchildren as beneficiaries.
This option is correct because it allows the widow to secure a reliable income for herself while also providing for her grandchildren. The cash refund settlement option ensures that if she passes away before receiving the full amount of the annuity, the remaining funds will be returned to her beneficiaries, thus meeting her dual goals of income generation and wealth transfer.
B) Buy a single premium life insurance policy for $250,000 and name the grandchildren as beneficiaries.
This option is not suitable because while it provides a death benefit to the grandchildren, it does not address the widow's immediate need for income. Life insurance policies typically do not provide any financial support until the policyholder passes away, leaving her without the necessary income during her lifetime.
C) Buy five $50,000 deferred annuities one for each grandchild.
This choice is inappropriate as it focuses on distributing the funds to each grandchild rather than meeting the widow's immediate income needs. Deferred annuities do not provide income until a later date, which would not assist her financially while she is still alive.
D) Give each grandchild $50,000.
This option fails to serve the widow’s need for income during her lifetime. While it distributes her savings to her grandchildren, it does nothing to provide her with the necessary funds for living expenses, potentially jeopardizing her financial security.
Conclusion
The correct answer, buying an immediate income annuity, effectively balances the widow’s need for income with her desire to leave a legacy for her grandchildren. Other options either neglect her immediate income requirements or focus solely on wealth transfer without considering her financial stability during her lifetime.