Variable Annuity Suitability

What is variable annuity suitability?

It's a process designed to answer one important question:

Should you own this annuity in the first place?

Suitability reviews aren't meant to make buying an annuity harder.

They're there to help ensure the product fits your financial situation and retirement goals.

Key Takeaways

• Suitability determines whether an annuity is appropriate for your situation
• Variable annuities follow suitability rules overseen by FINRA and the SEC
• Fixed annuities are regulated by state insurance departments
• Suitability reviews consider your financial goals, investable assets, and liquidity needs
• In many cases, no more than 50% of investable assets should be allocated to annuities
• The goal is to use the least amount of money necessary to solve your retirement objective

What Does Suitability Mean?

Suitability is the review process insurance companies use before approving an annuity application.

The purpose is to determine whether:

• the annuity fits your financial situation
• you're purchasing it for the right reason
• you're investing an appropriate amount
• the product matches your retirement goals

If the answer is no, the application may be declined or require additional review.

Variable Annuities vs. Fixed Annuities

Not all annuities follow the same regulatory process.

Variable Annuities and Registered Index-Linked Annuities (RILAs) are securities products.

They fall under the oversight of:

• FINRA
• The SEC

Fixed annuities—including MYGAs, Single Premium Immediate Annuities (SPIAs), Deferred Income Annuities (DIAs), Qualified Longevity Annuity Contracts (QLACs), and Fixed Index Annuities—are regulated by state insurance departments.

While the oversight differs, suitability reviews exist for both product categories.

Why Insurance Companies Ask So Many Questions

During the application process, you'll likely be asked about:

• your income
• your investable assets
• your net worth
• your retirement goals
• your liquidity needs
• where the money is coming from

These questions aren't designed to be intrusive.

They're designed to determine whether the annuity is appropriate for your situation.

The 50% Guideline

As a general guideline, the National Association of Insurance Commissioners recommends that no more than 50% of your investable assets be placed into annuities.

Investable assets generally include money available for investment—not your home, vehicles, or other personal property.

There can be exceptions based on individual circumstances, but those situations typically require additional documentation and approval.

Suitability Protects Consumers

Some people become frustrated if an insurance company asks additional questions or declines an application.

In reality, suitability reviews are designed to protect consumers.

For example, an insurance company may determine that:

• too much money is being committed to an annuity
• you don't have enough liquid assets available
• another solution may be more appropriate

Those reviews help reduce the risk of someone purchasing an annuity that doesn't fit their financial needs.

Review Your Application Carefully

One of the most important steps in the process is reviewing your application before it's submitted.

Make sure all of the information is accurate.

That includes:

• your income
• your investable assets
• your financial goals
• the amount being invested

If something doesn't look right, ask questions before signing.

The information on the application should accurately reflect your financial situation.

Start With the Goal

Before comparing annuity products, answer two questions:

What do you want the money to contractually do?

When do you want those contractual guarantees to start?

Those answers help determine whether an annuity is suitable and, if so, which type may be appropriate.

Where to Compare Annuity Options

If you're evaluating annuities and want to compare contractual guarantees, you can use our annuity calculators here:

https://www.stantheannuityman.com/annuity-calculator/

The Bottom Line

Variable annuity suitability is designed to protect consumers by ensuring an annuity matches their financial goals and circumstances.

The review process helps determine whether the product is appropriate, whether the investment amount makes sense, and whether the annuity is solving the problem it was purchased to solve.

When the focus stays on contractual guarantees and suitability, you're far more likely to end up with an annuity that truly fits your retirement plan.

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