RAA RAA Sales Process & Suitability Analysis 1 — Questions and Answers
Question 1: Under NAIC Suitability in Annuity Transactions Model Regulation, which factor must an advisor consider when recommending an annuity?
- Only the client's current income
- The client's financial situation, needs, and objectives (Correct answer)
- Only the annuity's surrender charge schedule
- The advisor's commission structure
Correct answer: The client's financial situation, needs, and objectives
The NAIC model regulation requires advisors to consider the client's financial situation, needs, and objectives—not just income or product features—when recommending an annuity.
Question 2: Which document is used to collect the client information required for a suitability determination before recommending an annuity?
- Benefit illustration
- Needs analysis or suitability questionnaire (Correct answer)
- Replacement notice
- Policy summary
Correct answer: Needs analysis or suitability questionnaire
A needs analysis or suitability questionnaire collects financial and personal data needed to determine whether an annuity recommendation is appropriate for the client.
Question 3: What does the 'best interest' standard, as adopted in many states following the NAIC model, require of an advisor beyond traditional suitability?
- Recommending the highest-commission product available
- Placing the client's interests above the advisor's own interests (Correct answer)
- Avoiding all annuity sales
- Recommending only fixed annuities
Correct answer: Placing the client's interests above the advisor's own interests
The best interest standard requires the advisor to prioritize the client's interests over their own financial interests, including considering compensation when making recommendations.
Question 4: During the annuity sales process, when is the free-look period most relevant to a client?
- Before application submission
- After the policy is delivered, allowing the client to cancel for a full refund (Correct answer)
- During the underwriting review phase
- After the first anniversary of the contract
Correct answer: After the policy is delivered, allowing the client to cancel for a full refund
The free-look period begins after contract delivery and gives the client a defined window (typically 10–30 days) to cancel the contract and receive a full refund.
Question 5: Which of the following is a red flag indicating an annuity recommendation may not be suitable for a client?
- Client has a 10-year time horizon and stable income
- Client is 80 years old with 90% of liquid assets being recommended for the annuity (Correct answer)
- Client wants guaranteed lifetime income
- Client has already annuitized a previous contract
Correct answer: Client is 80 years old with 90% of liquid assets being recommended for the annuity
Recommending that a very elderly client place nearly all liquid assets into an annuity is a major suitability red flag due to limited access to funds and potential liquidity needs.
Question 6: What is the primary purpose of the disclosure document provided to annuity prospects before or at the point of sale?
- To lock the client into a purchase decision
- To ensure the client understands the product's features, costs, and risks (Correct answer)
- To satisfy the insurer's marketing requirements
- To document the advisor's compensation
Correct answer: To ensure the client understands the product's features, costs, and risks
Pre-sale disclosures ensure clients receive clear, accurate information about annuity features, charges, surrender periods, and risks so they can make an informed decision.
RAA RAA Sales Process & Suitability Analysis 1
Under NAIC Suitability in Annuity Transactions Model Regulation, which factor must an advisor consider when recommending an annuity?