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15.8 Annuities

Suitability Requirements​

Insurance agents must act in the best interest of the consumer when recommending the purchase or exchange of an annuity.

Duties of Insurers and Agents​

Before recommending the purchase, exchange, or replacement of an annuity, the producer must have reasonable grounds to believe that the recommendation is suitable for the consumer. This includes determining that:

  • The consumer has been reasonably informed about the annuity’s features, including fees, charges, and interest rate limitations.
  • The consumer would benefit from features of the annuity, such as tax-deferred growth, annuitization, or death and living benefits.
  • The annuity, when considered as a whole, is appropriate and suitable for the consumer’s financial needs and objectives.

Before an annuity is purchased, exchanged, or replaced, the insurer or agent must make reasonable efforts to obtain the consumer’s suitability information. This information includes the consumer’s:

  • Age
  • Annual income
  • Financial situation and needs, including the source of funds used to purchase the annuity
  • Financial experience and financial objectives
  • Intended use of the annuity and the anticipated time horizon for its use
  • Existing assets, including investment and life insurance holdings
  • Liquidity needs and liquid net worth
  • Risk tolerance
  • Tax status

Exemptions​

Unless otherwise specifically included, the above suitability requirements do not apply to transactions involving:

  • Direct response solicitations where no recommendation based on collected suitability information is made
  • Contracts used to fund pension or welfare benefit plans
  • Benefit or deferred compensation plans established for government or church employees
  • A nonqualified deferred compensation plan established or maintained by an employer or plan sponsor
  • Settlements relating to personal injury litigation, dispute, or claim resolution process
  • Certain prepaid funeral contracts

Recordkeeping​

Insurers, independent agencies, business entity agents, and insurance agents must maintain, or be able to provide to the Superintendent, records of the consumer information collected and any other information used as the basis for recommendations related to insurance transactions. These records must be retained for eight years after the insurance transaction has been completed by the insurer. An insurer may maintain the required documentation on behalf of an insurance agent, but is not obligated to do so.