Key Takeaways
- Florida requires clear disclosure of all surrender charges before an annuity sale
- Producers must explain the complete surrender charge schedule including declining schedules
- Free withdrawal provisions must be clearly disclosed along with any limitations
- Florida follows NAIC model disclosure requirements for annuity illustrations
- Replacement transactions require detailed comparison disclosures of surrender charges
Florida Annuity Surrender Charges and Disclosures
Florida requires clear and complete disclosure of annuity surrender charges to protect consumers.
Surrender Charge Disclosure Requirements
What Must Be Disclosed
Before completing an annuity sale:
| Disclosure Item | Requirement |
|---|---|
| Surrender Schedule | Complete schedule all years |
| Declining Schedule | How charges decrease |
| Free Withdrawal | Amount without penalty |
| Penalty-Free Events | Death, disability, etc. |
| MVA Impact | Market Value Adjustments |
Timing of Disclosures
- Before application is signed
- In writing
- In clear language
- With time for questions
Common Surrender Charge Structures
Typical Declining Schedule
| Year | Sample Charge |
|---|---|
| 1 | 7% |
| 2 | 6% |
| 3 | 5% |
| 4 | 4% |
| 5 | 3% |
| 6 | 2% |
| 7 | 1% |
| 8+ | 0% |
Free Withdrawal Provisions
Most annuities allow:
- 10% of contract value annually
- May accumulate if not used
- First-year restrictions may apply
- RMDs often penalty-free
Exam Tip: Always disclose the free withdrawal percentage AND any restrictions that apply.
Market Value Adjustments (MVAs)
Some annuities include MVAs:
How MVAs Work
| Scenario | Effect |
|---|---|
| Interest rates rise | MVA may reduce value |
| Interest rates fall | MVA may increase value |
| Held to maturity | No MVA applies |
MVA Disclosure Requirements
- Explain MVA can increase OR decrease value
- Provide examples of impact
- Do not minimize negative risk
- Disclose in writing
Penalty-Free Surrender Events
Florida requires disclosure of penalty-free events:
Common Events
| Event | Description |
|---|---|
| Death | Full value to beneficiary |
| Terminal Illness | Waiver if diagnosed |
| Nursing Home | Waiver after confinement |
| Disability | Waiver for total disability |
| Annuitization | Waiver if annuitized |
Required Disclosures
For each event:
- Triggering conditions
- Required documentation
- Time limits
- Any exceptions
Replacement Surrender Charge Disclosures
When replacing annuities:
Comparison Requirements
| Item | Old Contract | New Contract |
|---|---|---|
| Surrender period | Remaining years | Total years |
| Surrender charge | Current % | Starting % |
| Free withdrawal | Available amount | New provisions |
Consumer Acknowledgment
Consumer must sign acknowledging:
- Understanding of new surrender period
- Old charges may still apply
- Loss of benefits from existing
- Reason for replacement
Florida Illustration Requirements
Florida follows NAIC model for annuity illustrations:
Required Illustration Elements
| Element | Requirement |
|---|---|
| Guaranteed Values | Must show guaranteed |
| Non-Guaranteed | Clearly labeled |
| Surrender Values | Year-by-year |
| Death Benefits | If applicable |
Illustration Delivery
- Before or with application
- Signed by consumer
- Copy retained for records
Best Practices for Producers
Disclosure Best Practices
| Practice | Benefit |
|---|---|
| Use visual aids | Helps understanding |
| Show examples | Makes concrete |
| Document discussion | Protects producer |
| Allow questions | Ensures understanding |
What to Emphasize
- Total surrender period
- First-year and declining charges
- Free withdrawal amount
- Penalty-free events
- Impact of early withdrawal
Regulatory Scrutiny
OIR and DFS review for:
Excessive Charges
- Charges above market average
- Charges that don't decline
- Hidden charge structures
Inappropriate Products
- Surrender periods past life expectancy
- Limited liquidity for those needing access
- Complex products for unsophisticated buyers
Exam Tip: Florida requires surrender charge disclosures BEFORE the sale. Give consumers time to understand before committing.
When must surrender charge disclosures be provided in Florida?
What is a Market Value Adjustment (MVA)?
What percentage free withdrawal do most annuities allow annually?
Which is typically a penalty-free surrender event?
What must be disclosed when replacing an existing annuity in Florida?