5.2 Virginia Annuity Disclosure Requirements
Key Takeaways
- Before any recommendation, the agent must deliver the Commission's Insurance Agent (Producer) Disclosure for Annuities form (CN01) describing the relationship and compensation.
- The NAIC Annuity Buyer's Guide and a contract summary must be delivered at or before application (with policy for direct-response sales).
- All surrender charges, administrative fees, mortality-and-expense charges, subaccount expenses, and rider costs must be disclosed in writing.
- Replacements trigger 14VAC5-30: the replacing insurer must give a written right to examine of at least 10 days with an unconditional full refund.
- Illustrations must clearly separate guaranteed from non-guaranteed elements; non-guaranteed values may not be presented as guaranteed.
The Agent Disclosure Form (CN01)
The disclosure obligation in 14VAC5-45 is satisfied through a specific document: the Insurance Agent (Producer) Disclosure for Annuities form, referenced as CN01, effective 9/1/2021. The agent must deliver it prior to the recommendation or sale, not afterward. The form prominently states:
- The scope and terms of the agent's relationship with the consumer and the agent's role in the transaction
- The types of products the agent is authorized to sell (e.g., fixed annuities only, or fixed and variable)
- The insurers the agent is authorized to represent
- How the agent is compensated (commissions, fees, non-cash compensation) and the consumer's right to request a reasonable estimate of cash compensation
Exam Tip: Timing is the trap. CN01 goes out BEFORE the recommendation. CN02 (refusal) and CN03 (no-recommendation purchase) are obtained at the point of refusal or unsolicited sale. Memorize which form attaches to which moment.
Buyer's Guide and Contract Summary
Virginia requires delivery of the current NAIC Annuity Buyer's Guide plus a contract summary (disclosure document) so the consumer understands the product before committing.
| Sale type | When the Buyer's Guide and summary are delivered |
|---|---|
| Standard solicited sale | At or before the time of application |
| Replacement | With or before the replacement notice, before the application is accepted |
| Direct response (mail/online) | No later than with policy delivery, triggering an extended right to return |
The Buyer's Guide explains how annuities work, the difference between immediate and deferred annuities, fixed vs. variable vs. indexed designs, surrender charges, and the questions a consumer should ask.
Fee and Charge Disclosure
All material costs must be disclosed in writing. Inadequate surrender-charge disclosure is one of the most common market-conduct findings.
| Charge | What must be disclosed |
|---|---|
| Surrender charge | Full schedule, starting percentage, and number of years until it reaches 0% |
| Free-withdrawal allowance | Typically up to 10% of account value per year without penalty (varies by contract) |
| Administrative / contract fee | Annual flat or percentage charge |
| Mortality & expense (M&E) | Applies to variable annuities only |
| Subaccount expenses | Underlying fund fees for variable contracts |
| Rider charges | Cost of optional living/death benefits (e.g., GLWB) |
Replacements and the Right to Examine
When a transaction replaces existing life insurance or annuity coverage, 14VAC5-30 (Rules Governing Life Insurance and Annuity Replacements) applies in addition to 14VAC5-45. The replacing insurer must give the owner written notice of the right to examine the contract for at least 10 days from delivery and to return it for an unconditional full refund of all premiums, fees, and charges paid.
Note the distinction the exam tests: Virginia mandates this 10-day right-to-examine in the replacement context; for a non-replacement new annuity the right to return is set by the contract itself (commonly 10 days, longer for direct-response). There is no separate statutory 20-day senior free look for annuities in Virginia — do not confuse this with other states.
Guaranteed vs. Non-Guaranteed Elements
Illustrations and sales materials must clearly separate what is contractually guaranteed from what is not. Presenting projected (non-guaranteed) values as if they were guaranteed is a prohibited practice.
| Element type | Examples | Labeling rule |
|---|---|---|
| Guaranteed | Minimum guaranteed interest rate, guaranteed minimum death benefit, guaranteed annuitization rate | Must be shown as guaranteed |
| Non-guaranteed | Current crediting rate, current index participation/cap rates, projected account values | Must be plainly labeled non-guaranteed |
| Assumed/hypothetical | Future index performance scenarios | Assumptions must be stated |
Worked example: an indexed annuity brochure shows an 8% "illustrated" return next to the contract's 1% guaranteed minimum. If the 8% is not clearly labeled non-guaranteed and based on a hypothetical index assumption, the disclosure is defective and exposes the agent to discipline.
Advertising and Prohibited Practices
Virginia's advertising rules for life and annuity products reinforce the disclosure regime. Sales material may not be deceptive, may not use the word "investment," "savings," or "deposit" in a way that hides the insurance character of the product, and may not imply that an annuity is FDIC-insured or risk-free when it is not. Two named prohibited practices appear repeatedly on exams:
| Practice | Definition | Why it is prohibited |
|---|---|---|
| Twisting | Misrepresenting facts to induce a consumer to replace existing coverage | Harms the consumer with new surrender charges and lost benefits |
| Churning | Replacing a policy using values from the same insurer's existing policy to generate new commissions | Self-dealing with the consumer's accumulated value |
Both are forms of unsuitable replacement and both can lead to license action under the Bureau of Insurance.
The Replacement Process Step by Step
When a replacement occurs, both the replacing and existing insurers have duties under 14VAC5-30. The exam likes the sequence:
- The agent presents and the consumer signs a replacement notice disclosing that existing coverage will be terminated, reduced, or used.
- The agent leaves the consumer copies of all sales proposals and the signed notice.
- The replacing insurer notifies the existing insurer so the existing carrier can send the consumer a comparison and a chance to conserve the policy.
- The consumer receives the right to examine the new contract for at least 10 days with an unconditional full refund.
- The replacing insurer maintains the documentation for examination by the Commission.
Direct-Response and Variable-Annuity Disclosures
For direct-response sales (mail, telephone, internet) where the Buyer's Guide could not be delivered before application, it must be delivered no later than with the policy, and the consumer's right to examine is extended so it effectively begins at delivery. For variable annuities, federal securities law layers on top of state rules: the consumer must receive a prospectus, and the variable product is sold under both SEC/FINRA rules and Virginia insurance law. A variable annuity that is not registered, or sold by an agent without a securities registration, is a serious compound violation.
When must a Virginia agent deliver the Insurance Agent (Producer) Disclosure for Annuities form (CN01)?
A Virginia consumer replaces an existing deferred annuity with a new one. Under 14VAC5-30, what right must the replacing insurer provide?
On a Virginia indexed-annuity illustration, which value must be plainly labeled as non-guaranteed?
Which document explains annuity types, surrender charges, and questions to ask, and must be delivered at or before application in a solicited Virginia sale?