What Is Annuity Suitability and Why Does It Matter?

Hi there, I’m Stan The Annuity Man, America’s annuity agent licensed in all 50 states.

Today we’re talking about annuity suitability.

What is annuity suitability? Why is it important? And how does it affect your purchase?

It’s actually a really good question.

What Is Annuity Suitability?

The short answer, in plain North Carolina English, is this:

Annuity suitability is the process the insurance company uses to make sure the annuity you’re buying fits your financial situation.

When you go through the process with us — you run quotes, schedule a call, we explain the good, the bad, the benefits, and the limitations — and you decide the annuity fits, you’ll move to the application stage.

Part of that process is annuity suitability.

The insurance company wants to make sure you’re not putting too much money into annuities.

I know what you’re thinking.

“Wait a minute, Stan. I thought the annuity industry just wanted all the money.”

No.

Annuities are not for everybody.

You either need to transfer risk for Principal Protection, Income for Life, Legacy, or Long-Term Care — or you don’t.

And the carrier has to confirm that.

What Information Do They Ask For?

The annuity company will want:

• Your net worth
• Your income
• Your overall investment picture
• The percentage this annuity represents of your investable assets

Investable net worth does not include your house, your car, or your guitar.

It includes liquid assets like IRAs, brokerage accounts, CDs, stocks, bonds, and cash.

The carrier wants to make sure you are not over-allocating into annuities.

This is not about gathering data for marketing.

It is about protecting you.

All information is confidential. It goes to the annuity carrier’s suitability department. We do not sell it, share it, or keep it.

Why Suitability Exists

Suitability exists to prevent overselling.

Let’s say someone has $500,000 total in investable assets.

If an agent “fudges” the numbers and writes down $1 million so the person can put all $500,000 into annuities, that’s a problem.

That’s not just unethical.

That can be a misdemeanor or even a felony.

The insurance company only sees what is written on the application. That’s why the suitability review is so strict.

It’s designed to weed out bad behavior.

If someone oversold you annuities based on falsified information, you would have legal grounds against that agent.

Suitability is there to protect you from that.

The Carrier Has Final Say

Even if the math appears to work, the carrier can still decline the case.

It’s their discretion.

For example, if the annuity purchase represents 62% of your portfolio instead of 50%, they may say no.

We have to respect that.

The life insurance companies that issue annuities take suitability very seriously.

Why It Can Feel Like a Pain

Some people don’t like giving financial details.

I had a gentleman recently who didn’t understand why he had to provide this information just to buy an annuity.

The answer is simple.

It’s for your protection.

You don’t need to give exact dollar amounts down to the penny. Broad ranges are fine. The goal is to confirm the move makes sense.

Annuities are contracts, not investments. But the carrier must confirm the purchase is suitable for your overall financial picture.

The Bottom Line on Annuity Suitability

Annuity suitability:

• Protects you
• Prevents overselling
• Requires honest disclosure
• Allows the carrier to confirm the contract fits your situation

There are good people in this industry.

There are also some hoo-has.

Suitability helps weed out the hoo-has.

When you go through the process with us, my policy delivery and application team will ask these questions.

They are confidential.

They are required.

And they exist to protect you.

That is what annuity suitability is.

I’m Stan The Annuity Man. See you next time.