Overview: Insurance agents face two complementary challenges: overcoming client misconceptions and ensuring their sales practices meet regulatory standards. Both appear on licensing exams.

Addressing Misconceptions

"If I die early, the insurance company keeps everything." This is true only for life-only options with no refund feature. Period certain, refund, and joint-and-survivor options all protect beneficiaries. Agents should discuss payout options early in any conversation.

"My money is completely locked up." Most deferred annuities permit 10% annual free withdrawals from the beginning. Emergency waivers for terminal illness and nursing home confinement provide additional access. The agent should make liquidity provisions explicit.

"Annuities are all the same." Fixed, indexed, and variable annuities are as different from each other as a savings account, a CD, and a stock portfolio. Agents should map the client's goals before recommending any product type.

"Variable annuities beat the market." After annual fees of 2–4%, variable annuities must clear a substantial hurdle before delivering real returns. For many clients, a low-cost taxable brokerage account or Roth IRA produces better after-fee, after-tax outcomes.

Regulatory Compliance

The NAIC Suitability in Annuity Transactions Model Regulation requires agents to satisfy four obligations: care (understand the product and the client), disclosure (provide written disclosures of compensation and conflicts before or at sale), conflict of interest management (avoid or disclose material conflicts), and documentation (record the basis for the recommendation in writing).

Before making any annuity recommendation, agents must collect and document:

Age, annual income, financial situation and needs
Financial objectives, experience, and time horizon
Existing assets (investment and insurance holdings)
Liquidity needs, liquid net worth, and risk tolerance
Tax status and intended use of the annuity

If a client refuses to provide suitability information, the agent must obtain a signed acknowledgment of that refusal. Clients who proceed contrary to the agent's recommendation must sign a separate acknowledgment.

Variable annuities trigger additional requirements under FINRA Rule 2330: a registered principal must review and approve (or reject) the transaction within 7 business days of receiving a complete application. Sales contests tied to specific annuity products are prohibited under SEC Regulation Best Interest.

Replacement transactions require a Replacement Form that compares the existing and proposed contracts, including surrender charges on the old policy. Replaced contracts often trigger an extended free-look period (typically 30 days). Records must be retained for a minimum of 5 years.