5.2 Washington Annuity Disclosure Requirements

The Buyer's Guide Requirement

Washington requires delivery of the NAIC Annuity Buyer's Guide and a product disclosure document so the consumer can understand the contract before committing. Timing depends on how the sale occurs:

The Buyer's Guide explains how annuities work, the differences among fixed, indexed, and variable contracts, the questions to ask, and how surrender charges operate. The exam may test that the Buyer's Guide is an educational document — it does not replace the producer's disclosure and documentation obligations from Section 5.1.

Fee and Charge Disclosures

The product disclosure must spell out every cost in writing. Memorize the categories:

Worked example

A fixed indexed annuity has a 7-year surrender schedule of 7%, 6%, 5%, 4%, 3%, 2%, 1%, then 0%, with a 10% annual free withdrawal. A consumer with a $100,000 contract who withdraws $25,000 in year 2 owes a 6% charge on the $15,000 above the $10,000 free amount = $900. Being able to walk a consumer through that math is exactly what "clear surrender charge disclosure" means.

Trap: Inadequate surrender-charge disclosure is treated as a serious violation. A free-look refund and a surrender charge are different mechanisms — the free look refunds all premium; a surrender charge applies only after the free look ends.

The Free Look Period

The free look (right to examine) lets a consumer cancel for a full refund of premium with no charges. The period begins when the policy is delivered.

During the free look the consumer may return the contract "no questions asked" and receive all premium back — no surrender charges and no fees are deducted (for a variable annuity the refund may be adjusted to market value where the contract so provides). The longer 20-day window for replacements exists so the consumer can compare the new contract against the one being surrendered.

Guaranteed vs. Non-Guaranteed Elements

Every annuity illustration must clearly separate what is promised from what is projected:

The illustration must label each value and may not present a non-guaranteed rate as if it were guaranteed. This is one of the most heavily tested distinctions — the current credited rate is always non-guaranteed, while the minimum guaranteed rate is the floor.

Replacement Disclosures

When the transaction is a replacement, Washington layers additional requirements on top of the standard disclosures:

Exam Tip: The existing insurer often has the right to conserve the business — to contact the policyholder and present reasons to keep the original contract. The 20-day free look gives the consumer time to weigh both sides.

Putting the Disclosures in Sequence

A clean way to remember the disclosure flow is to track the document the consumer receives at each step. First, before or at application, the producer hands over the Buyer's Guide and the carrier's disclosure document describing the specific contract. Next, the producer reviews the surrender charge schedule and the free-withdrawal allowance so the consumer understands liquidity limits. If the sale replaces existing coverage, the replacement notice is signed and the side-by-side comparison is presented, and the existing insurer is notified. Finally, on delivery, the free look clock starts.

The exam often tests timing words. "At or before application" governs the Buyer's Guide for producer sales; "no later than delivery" governs direct-response sales; "upon delivery" starts the free look. Confusing these is a common point loss.

Variable annuity overlay

Because a variable annuity is a security, its disclosure layers federal requirements on top of Washington's. The consumer must receive a prospectus, and the M&E charge plus subaccount fund expenses must be disclosed. A variable annuity's free-look refund may equal the account value (which can be less or more than premium) rather than gross premium, where the contract so provides, because the money was invested in separate-account subaccounts subject to market risk. A fixed annuity's free-look refund, by contrast, returns the full premium.

Why disclosure quality matters

Washington examiners view inadequate or misleading disclosure — especially of surrender charges and the guaranteed-versus-non-guaranteed distinction — as an unfair practice that can lead to fines, restitution, and license action (covered in Section 5.3). The defensive posture for a producer is simple: give every required document, label every illustrated value, walk the consumer through the surrender math, and keep copies. A signed acknowledgment that the consumer received the Buyer's Guide and disclosure document is strong evidence of compliance.

Trap: A signed application is not proof the consumer understood the product. Disclosure obligations are about delivering and explaining the documents, not merely collecting a signature.