Annuity Best Interest flashcards
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32 cards. Read the term and the definition here. The deck at the top of this page is optional.
- Best interest standard
- A conduct standard requiring that an annuity recommendation be based on the consumer's suitability information and reflect the consumer's best interest, supported by care, disclosure, conflict, and documentation obligations.
- Care obligation
- The producer must understand the product and the consumer's financial situation and have a reasonable basis to believe the recommendation is suitable for that consumer.
- Documentation obligation
- The producer must record the basis for the recommendation and any refusal by the consumer to provide suitability information, keeping records as required by state law.
- Conflict of interest obligation
- Producers must identify material conflicts, such as commissions that vary by product, and avoid or reasonably manage them so they do not bias the recommendation.
- Disclosure obligation
- Before or at the time of sale, the producer must disclose material conflicts of interest and the basis for the recommendation to the consumer.
- Senior-specific protections
- Enhanced review and documentation requirements that many states apply to recommendations for consumers age 65 or older or those with diminished capacity.
- Suitability information
- Consumer data including age, income, financial situation, experience, objectives, time horizon, existing assets, insurance needs, and risk tolerance used to support a recommendation.
- Refusal to provide information
- If a consumer declines to provide suitability information, the producer must document the refusal and still have a reasonable basis for any recommendation.
- Liquidity needs analysis
- An assessment comparing the consumer's need for access to funds against the surrender charge period and free withdrawal provisions of the recommended annuity.
- Time horizon matching
- Aligning the consumer's investment horizon with the surrender charge period and any index crediting or bonus vesting timelines in the contract.
- Fixed indexed annuity
- A deferred annuity crediting interest linked to an external index, subject to a participation rate, cap, or spread, and typically a 0% floor.
- Variable annuity
- An annuity whose value fluctuates with subaccount investments; it is a registered security and requires both insurance and securities licenses to sell.
- Deferred income annuity
- An annuity purchased with a lump sum in which income payments begin at a future date selected at purchase, often years later.
- Guaranteed lifetime withdrawal benefit
- An optional rider permitting withdrawals for life from a benefit base, typically for an additional annual fee that reduces contract value.
- Free withdrawal provision
- A contract feature allowing withdrawal of a set percentage, often 10% of accumulated value, each year without incurring a surrender charge.
- Annuitization
- The conversion of accumulated value into a stream of income payments, with payout options such as life only, life with period certain, and joint and survivor.
- Participation rate
- The percentage of an index gain that is credited to a fixed indexed annuity, applied before any cap or spread adjustment.
- Cap and spread
- A cap is the maximum interest rate credited; a spread is an amount deducted from index gain before crediting interest to the contract.
- Free look period
- A period after delivery, commonly 10 to 30 days, during which the consumer may cancel the annuity and receive a full refund.
- Surrender charge
- A percentage fee assessed on withdrawals above the free withdrawal amount during the surrender charge period, often declining to zero over 7 to 10 years.
- Market value adjustment
- An adjustment applied to some fixed annuities on early surrender that reflects changes in interest rates since purchase.
- Benefit base reduction
- A partial withdrawal above the free amount may reduce a guaranteed income benefit base, either dollar-for-dollar or pro rata depending on the contract.
- Mortality and expense charge
- A recurring fee in variable annuities covering insurance guarantees and administrative costs, expressed as a percentage of account value.
- Rider fee
- An annual charge, typically a percentage of the benefit base or account value, for optional benefits such as guaranteed lifetime withdrawal riders.
- Compensation disclosure
- Disclosure of commissions and other compensation that create material conflicts of interest, required so the consumer understands the producer's incentives.
- Illustration labeling
- Illustrations must be clearly labeled and must distinguish guaranteed from non-guaranteed elements so consumers do not assume projected results are guaranteed.
- Twisting
- Inducing a consumer to lapse or surrender an existing policy through misrepresentation in order to sell a new contract.
- Churning
- Replacing a policy primarily to generate new commissions without a material benefit to the consumer.
- Replacement notice
- A disclosure provided to the consumer and the existing insurer when a new annuity is funded by surrendering or lapsing an existing policy.
- 1035 exchange
- A tax-deferred transfer of an annuity or life insurance contract to another annuity, generally without current taxation, though surrender charges may still apply.
- Replacement comparison
- An analysis comparing surrender charges, new surrender charge periods, lost benefits, and new fees of the proposed contract against the existing contract.
- Recordkeeping requirement
- Producers must retain suitability information, recommendations, and disclosures for the period set by state law, often 5 to 7 years, and produce them to regulators.