Key Takeaways
- Texas follows the NAIC Suitability in Annuity Transactions Model Regulation
- Annuity suitability requires producers to gather client information and make suitable recommendations
- Texas requires disclosure of surrender charges, fees, and penalty-free withdrawal provisions
- Replacement of existing annuities requires detailed comparison and notification
- Senior-specific protections apply to annuity sales to elderly consumers
Texas Annuity Regulations
Texas has adopted comprehensive annuity regulations to protect consumers from unsuitable sales.
Suitability Requirements
Texas follows the NAIC Suitability in Annuity Transactions Model Regulation:
Producer Duties
Before recommending an annuity, the producer must:
- Obtain customer information - Financial situation, tax status, investment objectives
- Analyze suitability - Determine if recommendation is appropriate
- Document the recommendation - Keep records of basis for recommendation
- Disclose material information - Explain product features and limitations
Required Customer Information
| Category | Information Required |
|---|---|
| Financial Status | Income, assets, debts, financial needs |
| Tax Status | Tax bracket, qualified vs. non-qualified funds |
| Investment Objectives | Goals, time horizon, risk tolerance |
| Existing Coverage | Current annuities and life insurance |
| Liquidity Needs | Expected need for funds |
| Age and Financial Experience | Understanding of products |
Safe Harbor
If producer gathers required information and documents recommendation:
- Presumption that suitability requirements met
- Insurer has supervision obligations
- Records must be maintained for review
Disclosure Requirements
Texas requires specific disclosures for annuity sales:
Required Disclosures
| Disclosure | Requirement |
|---|---|
| Surrender Charges | Full schedule must be disclosed |
| Free Withdrawal | Amount that can be withdrawn without penalty |
| Death Benefit | How benefit is calculated |
| Fees | All fees and charges |
| Tax Consequences | Premature withdrawal penalties |
Buyer's Guide
Texas requires an Annuity Buyer's Guide be provided:
- Must be provided before or at application
- Explains how annuities work
- Describes different types
- Lists questions to ask
Replacement Requirements
When replacing an existing annuity, producers must:
Documentation Required
- Comparison statement - Side-by-side of existing and new contract
- Replacement form - Signed acknowledgment
- Suitability analysis - Why replacement is appropriate
- Disclosure of surrender charges - On both policies
Notification
- Existing insurer must be notified of replacement
- Allows existing insurer opportunity to conserve business
- Records must be maintained
Senior Protections
Texas has enhanced protections for senior consumers:
Considerations
- Additional scrutiny for sales to seniors
- Surrender periods relative to age
- Liquidity needs assessment
- Suitability documentation enhanced
Exam Tip: When selling annuities in Texas, remember the suitability requirements: gather information, analyze, document, and disclose.
Which of the following is required when recommending an annuity in Texas?
What document must be provided to annuity buyers in Texas?