5.1 Annuity Disclosure Requirements

The Disclosure Framework

Michigan has adopted the National Association of Insurance Commissioners (NAIC) Annuity Disclosure Model Regulation. The goal is to make sure a buyer understands an annuity's costs, guarantees, and limitations before money changes hands. Two documents drive the rule: a generic Buyer's Guide and a contract-specific disclosure document (often called a contract summary).

These requirements do not apply to every annuity. Carve-outs include registered (variable) contracts already governed by Securities and Exchange Commission (SEC) prospectus rules, employer plans under Internal Revenue Code sections 401/403/408/457, structured settlements, and immediate annuities.

Buyer's Guide and Disclosure Timing

The single most-tested fact is timing. Both documents must be delivered at or before application. Missing that deadline triggers a consumer remedy.

Exam trap: Students confuse the Buyer's Guide (generic, plain-language education) with the disclosure document (specific to this contract's values and fees). The exam expects you to know both are required, and that late delivery extends the free look to a minimum of 15 days.

What the Buyer's Guide Covers

• What an annuity is and how accumulation and payout phases work
• The difference between fixed, fixed indexed, and variable annuities
• How interest is credited and how caps, spreads, and participation rates limit gains
• Surrender-charge mechanics and tax treatment basics
• A list of questions to ask the producer before buying

Free Look Right (Right to Examine)

Every annuity issued in Michigan must contain a notice of the buyer's right to return the contract. Under MCL 500.4073, the period must be at least 10 days after the owner receives the contract. If the owner mails or surrenders the contract within that window, it is void from the beginning and the insurer must promptly refund premium, including policy fees and charges. For a variable contract, the refund equals premiums paid minus amounts allocated to separate accounts, plus the current value of the separate-account allocation on the date the returned contract is received — so the buyer absorbs any market movement during the look period.

Why Disclosure Matters Commercially

Annuities are among the most complaint-prone insurance products precisely because their costs are opaque. Surrender charges can lock funds for a decade, indexed-crediting formulas cap upside in ways buyers rarely model, and variable separate accounts can lose principal. The disclosure regime forces the producer to convert that complexity into plain numbers — a specific surrender schedule, a specific cap, a specific annual fee — before the application is signed, which is also the producer's best defense against a future misrepresentation allegation.

The Contract-Specific Disclosure

Beyond the generic guide, the disclosure document must describe the actual contract being sold and itemize every cost. Vague language such as "fees may apply" is non-compliant.

Illustration Standards

For fixed indexed and variable annuities, any illustration shown to the buyer must present guaranteed and non-guaranteed values side by side so the consumer never mistakes a hypothetical for a promise.

Worked example: A fixed indexed annuity has a 9% cap and a 0% floor. If the linked index returns 14%, the contract credits 9% (the cap limits the gain). If the index falls 12%, the floor protects principal and the contract credits 0% — the buyer loses nothing to the index, but pays fees and forgoes interest.

Qualified vs. Non-Qualified Tax Disclosure

Producers must explain the tax wrapper, a frequent suitability and disclosure point.

Exam trap: Selling a qualified annuity into an IRA "for the tax deferral" is a misleading-sales red flag — IRA money is already tax-deferred. The annuity must be justified by its income guarantees, not duplicate deferral.