5.3 Georgia Annuity Surrender Charges and Disclosures
Key Takeaways
- Georgia requires clear disclosure of all surrender charges before an annuity sale
- Producers must explain the complete surrender charge schedule
- Free withdrawal provisions must be clearly disclosed
- Georgia follows NAIC model disclosure requirements
- Replacement transactions require detailed comparison disclosures
Georgia requires clear disclosure of annuity surrender charges to protect consumers.
Disclosure Requirements
What Must Be Disclosed
Before completing a sale:
| Disclosure Item | Requirement |
|---|---|
| Surrender Schedule | Complete schedule |
| 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 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.
Market Value Adjustments
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 Events
Georgia 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 disability |
| Annuitization | Waiver if annuitized |
Required Disclosures
For each event:
- Triggering conditions
- Required documentation
- Time limits
- Any exceptions
Replacement Disclosures
When replacing annuities:
Comparison Requirements
| Item | Old Contract | New Contract |
|---|---|---|
| Surrender period | Remaining years | Total years |
| Surrender charge | Current % | Starting % |
| Free withdrawal | Available | New provisions |
Consumer Acknowledgment
Consumer must sign acknowledging:
- New surrender period
- Old charges may apply
- Lost benefits
- Reason for replacement
Georgia Illustration Requirements
Georgia follows NAIC model for illustrations:
Required Elements
| Element | Requirement |
|---|---|
| Guaranteed Values | Must show |
| Non-Guaranteed | Clearly labeled |
| Surrender Values | Year-by-year |
| Death Benefits | If applicable |
Illustration Delivery
- Before or with application
- Signed by consumer
- Copy retained
Best Practices
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
Commissioner reviews for:
Excessive Charges
- Charges above market average
- Charges that don't decline
- Hidden structures
Inappropriate Products
- Surrender periods past life expectancy
- Limited liquidity for those needing access
- Complex products for unsophisticated buyers
Exam Tip: Georgia requires surrender charge disclosures BEFORE the sale. Consumers need time to understand.
When must surrender charge disclosures be provided in Georgia?
What is a Market Value Adjustment (MVA)?
What percentage free withdrawal do most annuities allow?
Which is a penalty-free surrender event?
What must be disclosed when replacing an annuity?