2.2 North Dakota Annuity Regulations

The Best-Interest Standard (NAIC Model #275, 2020)

North Dakota has adopted the 2020 revision of the NAIC Suitability in Annuity Transactions Model Regulation (Model #275), which raised the old "suitability" bar to a best-interest standard of conduct. A producer satisfies best interest by exercising reasonable diligence, care, and skill so the recommendation reflects the consumer's financial situation, insurance needs, and objectives — without placing the producer's or insurer's financial interest ahead of the consumer's. The producer is not required to recommend the single lowest-cost product, nor to monitor the annuity after the sale.

The standard is built on four obligations the exam loves to test by name:

Producer Training Requirement

Before soliciting annuities in North Dakota a producer must complete a one-time, four-credit-hour annuity best-interest course. Producers already licensed before the rule took effect could satisfy it with a one-hour update course covering the 2020 changes. This is in addition to product-specific training from the issuing insurer. Failing to complete training before a sale is itself a violation, independent of whether the recommendation was suitable.

Required Consumer Profile (Care Obligation)

The care obligation cannot be met without first gathering and documenting the consumer's suitability information. North Dakota mirrors the NAIC list:

Worked example: A 72-year-old with $40,000 total savings, all of it her emergency fund, wants to move it into a deferred annuity with an 8-year surrender schedule. Because the funds are her sole liquidity and the surrender period likely outlives her stated horizon, recommending the product would breach the care obligation and the liquidity-needs analysis — the producer must decline or document a clearly justified exception.

Free Look and Disclosure on Annuity Contracts

Every North Dakota annuity contract carries a free look (right to return) period that begins when the contract is delivered. During the window the buyer may return the contract for a refund — for a fixed annuity, a refund of premium; for a variable annuity, generally the account value (which may be more or less than premium because the funds are invested). The producer must deliver, at or before application/recommendation, a Buyer's Guide to annuities and a product-specific disclosure document.

Surrender-charge disclosure is mandatory and a frequent exam target:

• The complete surrender-charge schedule (e.g., 8%, 7%, 6%, 5%, 4%, 3%, 2%, 1%, then 0) must be disclosed in writing.
• Any free-withdrawal corridor (commonly up to 10% of account value per year) must be explained.
• Market value adjustment (MVA) features, if present, must be disclosed because they can increase or decrease the surrender amount with interest-rate movement.
• Tax consequences, including the 10% IRS penalty on pre-59½ withdrawals, must be explained where applicable.

Senior-Specific Protections

North Dakota gives heightened attention to annuity sales to older consumers because surrender periods can exceed life expectancy and the products are illiquid. Producers selling to seniors must take extra care to:

• Explain surrender charges and the surrender period in plain language;
• Disclose how the new contract compares to any existing annuity or life policy being funded;
• Confirm the recommendation in writing and document the suitability basis;
• Avoid recommending a product whose surrender schedule conflicts with the senior's liquidity needs or short time horizon.

Prohibited and high-risk conduct:

1. Pressuring a senior to liquidate a Certificate of Deposit or existing annuity to buy a long-surrender product (potential unsuitability and a replacement triggering Section 2.3 rules).
2. Misstating the guaranteed return or hiding the surrender schedule.
3. Using the title "senior specialist" or similar credential the producer does not actually hold.

Comparison: Old Suitability vs. New Best Interest

Trap: The best-interest standard does not require the cheapest product, an ongoing fiduciary monitoring duty, or that the producer offer products from every insurer. It requires a documented, conflict-managed recommendation grounded in the consumer's profile at the time of the recommendation.