NAIC Annuity Suitability-IL (4-Hours, Online)




NOTE To Producers:

Online Version – National Association of Insurance Commissioners (NAIC) developed a model law on Annuity Suitability. As part of that model law adopted in your state, it requires 4 hour training. The course covers fixed annuities, indexed annuities, and variable annuities. It looks at common features and provisions. The course examines the difference between them as well. Suitability factors would include: income, age, current finance and goals, and objectives.  You must complete this 4-hour course to sell annuities in Illinois.

All current producers selling annuities must complete a complete a 4 hour course on annuity suitability. If you are selling an annuity with a long term care benefits, you must complete an 8 hour course on Long Term Care Partnership and complete a 4 hour LTC Refresher course before each license

Introduction to Annuities

The idea of an annuity goes back to Roman times. The Emperors sold an ”annua” (meaning   “annual stipends” in Latin). In exchange of this one time purchase of the annua, the Roman received a lifetime of annual payments.

Annuities served as the funding vehicles for the European wars in the 1700’s. England used them with income passing down through the generations. In 1759, a Pennsylvania insurance company was formed to provide benefits to Presbyterian ministers and their families. The ministers contributed to the fund with the understanding that they would get a lifetime of annual payments in their old age. It was not until the early 20th century that the purchase of annuities became common. The Great Depression led many more Americans to purchase annuities as a “rainy day fund”. Today, Americans purchase annuities in record amounts because of their features: safety, guaranteed interest rates, tax deferral, and time of distributions to the annuitant.


Annuities by How Premiums are Invested

Fixed Annuities are held in the general account of the insurance company. State laws set limits and types of investment that can be held in the general account. These investments are conservative and would include bonds (government & corporate), limited amount, of preferred and common stocks. The guiding principle is the safety of those funds.

An Equity Index Annuity (EIA) is a fixed annuity with a twist. An EIA has a minimum guaranteed rate (common 0% or 3%). The premium is $1.00 and expenses are $.09 equals $.91. The insurance company has $.91 to invest. Let’s say the insurance company is guaranteeing 0% return over a 10 year period on 100% of the premium or $1.00. The present value of that future dollar is $.59 earning 6% interest. The insurance company buys the bond to preserve the future value of $1.00. The insurance company has the difference of $.32 (.91-.59) to buy the option contracts on the underlying index to cover the future growth in the index. If the index is negative over the 10 year period, the insurance company loses the cost of the option and nothing more. Equity Index Annuities are a conservative investment tool since the principal is covered by the corporate bond.

Variable annuities invest in some fund that could be made up of stocks and/or bonds. Based on the makeup of the fund, the annuity owner could lose all of the premiums paid in. Variable annuities will be covered in detail later in this book.


Setup Menus in Admin Panel