4-Hour Annuity Best Interest Training

Table of Contents

Changing Times		1
Investment Objectives		3
	What exactly is an annuity?	4
Annuities are One of the Oldest Known Investments		4
A Common Annuity Objective is Retirement Funding		4
A Common Annuity Objective is Wealth Accumulation		4
A Common Annuity Objective is Payout Options		5
A Common Annuity Objective is Delay of Taxation		5
Determining the Right Products		5
Annuity Product Differences		6
Annuities are Used for Several Financial Objectives		6
	Safety of Investment	6
	Tax-Deferred Annuity Accumulation	7
	Funding Retirement	7
	Structured Settlements	7
	Probate Avoidance	8
Old Money; New Money		8
Annuity Participants		8
Types of Annuities		9
Maturity Dates		9
Annuity Income Options: Take Income Now or Later		10
	Immediate Annuities	10
	Example	10
	Deferred Annuities	10
	Split Annuities	11
Premium Payment Methods		11
	Single Premium Annuities	11
	Flexible Premium Annuities	11
Annuity Type Based on Policyowner Risk		12
	Variable Annuities	12
	Fixed Annuities	13
	Declared Rate Fixed Annuities	13
	Fixed Equity Indexed Annuities	13
	Two-Tiered Annuities	14
A Closer Look at Fixed Rate Annuities		15
Free Bailout Option		16
A Closer Look at Equity Indexed Annuities		17
A Closer Look at Variable Annuities		20
	Variable Annuity Annual Expenses	21
	Funding Variable Annuities	21
	Variable Annuity Death Benefit	22
Contract Provisions Affect Consumers		22
Annuity Surrender Values and Penalties		23
Guaranteed Rates of Return		25
	Interest Crediting Methods	25
	Important EIA Fact	26
	Simple Versus Compound Interest	27
Equity Index Annuity Crediting		28
EIA Participation Rates		29
EIA Averaging		29
EIA Caps		30
EIA Spreads, Margins and Administrative Fees		30
Withdrawing Annuity Funds		30
Annuity Benefit Payout Options		31
	Example	32
	Nonhuman Payees Under a Settlement Option	33
	Lifetime Income Payout Option	33
	Life Annuity, Period Certain Payout Option	33
	Joint-and-Last-Survivor Payout Option	34
	Required Distribution	34
Taxation		35
	Exclusion Ration	35
	Qualified and Non-qualified Annuity Annuitization	35
NAIC Model Code Section 4. Exemptions		37
	ERISA and Tax Favored Retirement Plans	37
	Using Annuities in Tax Favored Retirement Plans	38
	IRS Requirements for Annuity Funding	38
	Taxation of Qualified Annuity Distributions	39
Financially Sound Insurers		40
The Insurance Company or Companies Utilized		41
Agent Can Only Sell Products Allowed by Licensing Status		41
Full Client Disclosure on Insurers		41
Best Interest Standards		42
NAIC Model Code Section 6. Duties of Insurers and Producers		42
	A. Best Interest Obligations	42
	(1) (a) Care Obligation	42
	Determining the Best Interest of the Consumer	44
NAIC Model Code Section 5. Definitions		44
Asking the Right Questions to Develop a Consumer Profile		45
When recommendation is Not Possible Due to Lack of Information		46
NAIC Model Law Appendix B		47
	Ramifications of Refusing to Provide Personal Information	47
	Sales Practices	48
NAIC Model Code Section 6. Duties of Insurers and Producers		48
	(4) Documentation Obligation	48
NAIC Model Law Appendix C		49
	Deceptive Sales Practices Forbidden	50
NAIC Model Code Section 6. Duties of Insurers and Producers		50
	D. Prohibited Practices	50
	(3) Conflict of Interest Obligation	51
	Recordkeeping	51
NAIC Model Code Section 9. Recordkeeping		51
	Full Disclosure	52
NAIC Model Code Section 6. Duties of Insurers and Producers		52
	(2) Disclosure Obligation	52
	Identifying Best Interest Issues	53
Emergency Situations Not Foreseen by the Consumers		54
Crisis Waivers		54
It is Not a Liquidity Issue but Rather a Best Interest Issue		55
The Care Obligation		56
The Application		56
Placing the Consumer’s Needs Before the Producer’s Needs		56
Product Exchanges & Replacements		57
Product Replacement with Best Interest in Mind		57
Exchanges or Replacements within the Preceding 60 Months		57
NAIC Model Code Section 6. Duties of Insurers and Producers		57
(j) In the case of an exchange or replacement		57
Annuity Replacement in General		58
The Annuitants’ Death		59
Annuity Tax Deferred Status & Other Taxation Issues		59
Tax-Deferral Exception		61
1035 Exchange		61
Annuity Gifts		61
Other Tax Issues		62
Annuities Are (Sometimes) Protected Assets		62
Insurance Producer Compensation Disclosure Forms		63
NAIC Model Law Appendix A		63
Sometimes Recommendations are not Possible		65
NAIC Model Code Section 6. Duties of Insurers and Producers		66
B. Transactions not based on a recommendation		66
Basic Insurers Information Requirements		66
NAIC Model Code Section 6. Duties of Insurers and Producers		67
	C. Supervision System	67
Definitions for Annuity Products under Model Law		69
NAIC Model Law Section 5. Definitions		70

NAIC Model Law Section 7. Producer Training

A. A producer shall not solicit the sale of an annuity product unless the producer has adequate knowledge of the product to recommend the annuity and the producer is in compliance with the insurer’s standards for product training. A producer may rely on insurer-provided product-specific training standards and materials to comply with this subsection.

(6) A producer who has completed an annuity training course approved by the department of insurance prior to [insert effective date of amended regulation] shall, within six (6) months after [insert effective date of amended regulation], complete either:

a) A new four (4) credit training course approved by the department of insurance after [insert effective date of amended regulation]; or

b) An additional one-time one (1) credit training course approved by the department of insurance and provided by the department of insurance-approved education provider on appropriate sales practices, replacement and disclosure requirements under this amended regulation.

United Insurance Educators, Inc.

PO Box 1030

Eatonville, Washington 98328

(253) 846-1155

Email: mail@uiece.com

Website: www.uiece.com