Sales Practices, Illustrations, and Prohibited Conduct
Honest presentation
Annuity sales materials must be accurate and balanced. Illustrations must be clearly labeled as hypothetical, not guaranteed, and must disclose that credited rates are not predictions. Indexed annuity illustrations must show the effect of caps, participation rates, and floors, and must not imply that the consumer participates fully in index gains. Variable illustrations must be accompanied by a prospectus.
Prohibited conduct
Common categories tested:
- Misrepresentation of guarantees, returns, or insurer strength.
- Twisting: inducing a consumer to surrender or replace a policy through misleading comparisons.
- Churning: repeated replacement generating commissions without consumer benefit.
- False urgency and high-pressure tactics.
- Forgery, falsified signatures, or completing blank applications.
- Recommending without a reasonable basis or without required disclosures.
- Using designations or titles misleadingly (e.g., implying endorsement by a government agency).
- Sharing commissions with unlicensed persons.
Traps
- "Guaranteed" used loosely in marketing is a red flag; guarantees are subject to insurer claims-paying ability.
- Hypothetical illustrations presented as projections - the label matters.
- Twisting vs. churning: twisting involves misleading a consumer into replacing; churning is repeated replacement for commission. Both are prohibited.
- Endorsement implications: implying Social Security, Medicare, or government endorsement is prohibited.
- Signatures: the consumer must sign; a producer may not sign for them, even with verbal permission.
Worked example
A producer tells a consumer that an indexed annuity "can't lose money and will earn the index return." Both statements are misleading: the floor limits index-based loss but surrender charges and fees can still reduce value, and caps/participation rates mean the consumer does not receive the full index return.