Filling out suitability forms may be tedious, but keep in mind they were designed to help ensure that the insurance needs and financial objectives of consumers are appropriately addressed. The NAIC Suitability in Annuity Transaction Model Regulation requires insurance carriers to have a set of standards and procedures in place to provide for suitable recommendations by agents. Suitability forms provide a laundry list of questions intended to help agents identify any red flags signifying that a given product may not be appropriate for a consumer’s unique circumstances.

Keep in mind that every insurance carrier has their own version of a suitability form, but each gathers the same basic information, including the client’s:

  • Age
  • Income
  • Financial needs
  • Source of premium
  • Financial experience
  • Intended use of the annuity
  • Existing assets
  • Liquid assets
  • Risk tolerance
  • Tax status

After gathering the required consumer information, an agent must have reasonable grounds for believing his/her recommendation is suitable for the consumer and that ALL of the following have been satisfied:

  • The consumer has been informed of various features of the annuity such as potential surrender period and surrender charges, potential tax penalty if the consumer sells, exchanges, surrenders or annuitizes the annuity, all fees associated with the product and any additional riders included with the proposed product, limitations on interest returns, investment components and market risk.
  • The benefits from certain features of the annuity such as tax-deferred growth, death or living benefits.
  • Basics of the annuity as a whole — such as, but not limited to, the underlying subaccounts to which funds are allocated at the time of purchase, riders and similar product enhancements, if any.
  • In the case of an exchange or replacement of an annuity, the exchange or replacement is suitable.
  • If you aren’t already doing so, it is highly recommended that agents keep detailed files for each client noting any information provided by the client in order to help you determine the information required on all suitability forms, including:
  • Assets disclosed by the client.
  • Any discussion regarding the contract owner’s financial needs and objectives.
  • Whether a replacement was involved in the purchase of the annuity and, if so, discussions regarding surrender charges on the existing annuity, reasons the replacement was recommended, features and benefits of the new product compared to the existing product and any other relevant information provided to the client regarding the replacement.

Keep in mind that the information required on a carrier’s suitability form does not ensure that the annuity contract will be approved by the carrier. Further, documenting your process when making an annuity sale does not guarantee appropriate action will not be taken should a complaint arise, but should that happen providing this sort of documentation will be helpful AND expected.

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