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Stricter Standards Recommended for Selling Annuities




Brokers representing life insurance or investment companies — the two primary types of financial institutions offering annuity products — now must follow a stricter set of regulations.


The National Association of Insurance Commissioners (NAIC) approved a model regulation for insurance producers to follow when recommending annuity products to their clients. NAIC is the United States’ standard-setting and regulatory support organization.


Annuities are financial products that offer individuals — usually retirees — a guaranteed income stream. There are two types of annuities. Fixed annuities provide regular periodic payments. Variable annuities allow the owner to receive a larger cash flow when the annuity’s investments are doing well, but less cash when the investments do poorly.


NAIC’s strengthened annuity sales model law adds a best-interest standard that highlights four obligations: care, disclosure, conflict of interest and documentation. Brokers will need to provide extra effort and documentation to discover a client’s financial situation, insurance needs and financial objectives. While agents can recommend products that provide them with a high compensation level, they must be able to show they made recommendations based on a client’s best interest.


State insurance regulators now have the option of adopting the model regulation into their own insurance regulations.


Please Contact Us if you have any questions.

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