48. 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 this?
Answer: A
Buy an immediate income annuity for $250,000 with a cash refund settlement option and name the grandchildren as beneficiaries.
This option allows the widow to secure a stream of income for herself while also ensuring that her grandchildren will receive the remaining funds upon her passing. The cash refund settlement option provides a safety net, ensuring that the grandchildren inherit funds if the widow does not live long enough to utilize the annuity fully.
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 meets the widow's need for income while also allowing for a distribution of the remaining funds to her grandchildren. The immediate income annuity provides her with regular payments, and the cash refund option ensures that if she passes away before exhausting the annuity, the remaining balance can be given to her grandchildren.
B) Buy a single premium life insurance policy for $250,000 and name the grandchildren as beneficiaries.
This option is incorrect as it does not address the widow's immediate need for income. While a life insurance policy can benefit the grandchildren upon her death, it does not provide her with any income during her lifetime, which is a critical aspect of her financial situation.
C) Buy five $50,000 deferred annuities, one for each grandchild.
This option is also incorrect because it does not provide the widow with immediate income. Deferred annuities would not start providing income until a later date, which does not satisfy her current need for financial support.
D) Give each grandchild $50,000.
This option is not suitable as it eliminates the widow's need for income entirely. While it distributes her savings to her grandchildren, it does not provide her with any financial resources to support herself, which is essential given her situation.
Conclusion
The choice to buy an immediate income annuity with a cash refund option is the most appropriate for the widow as it balances her immediate income needs with her desire to provide for her grandchildren after her death. The other options fail to address both her need for income during her lifetime and the intended distribution of her savings. Thus, Option A is the only solution that effectively meets the widow's financial requirements.