Randy is a producer who is licensed in a state that has enacted the NAIC Suitability in Annuity Transactions Model Regulation. For the sale of which of the following products must Randy abide by the compliance requirements set forth in this model? a. only traditional fixed annuities b. only indexed annuities c. only variable annuities d. fixed, indexed and variable
The correct answer and explanation is:
Correct Answer: d. fixed, indexed and variable
Randy must comply with the NAIC Suitability in Annuity Transactions Model Regulation when selling fixed, indexed, and variable annuities. This model regulation, developed by the National Association of Insurance Commissioners (NAIC), is designed to ensure that annuity products are suitable for consumers based on their financial needs and circumstances. States that adopt this regulation impose specific requirements on insurance producers like Randy when they recommend and sell annuities.
The regulation requires producers to act in the best interest of the consumer when making annuity recommendations. It applies to all types of annuities that are sold to individuals for personal use, including:
- Traditional Fixed Annuities – These provide a guaranteed interest rate and a predictable income stream.
- Indexed Annuities – These offer returns based on the performance of a market index, such as the S&P 500, but usually with limits or caps.
- Variable Annuities – These allow consumers to invest in subaccounts that can fluctuate in value, offering potentially higher returns but also greater risk.
The NAIC model regulation aims to protect consumers by requiring thorough fact-finding about the consumer’s financial status, tax situation, investment objectives, and other relevant information. Producers must document this information and ensure their recommendation is based on a reasonable belief that the annuity is suitable for the consumer.
By applying to all three types of annuities, the regulation helps close potential gaps in consumer protection and raises the standard of care expected of producers. If Randy sells any annuity type in a state that has enacted this model regulation, he must follow its suitability and best-interest requirements. Failing to do so can result in disciplinary actions or loss of license.