Annuity Regulations

Are All Annuities Regulated?

All annuities are regulated at the state level by each state’s insurance commission. Any insurance company that issues annuities must be licensed in every state in which it does business. State insurance commissioners monitor the finances of insurance companies and ensure that they follow requirements designed to protect customers from negligent practices.

In addition to statewide regulation, variable annuities and registered indexed-linked annuities (RILAs) are also regulated at the federal level by the U.S. Securities and Exchange Commission (SEC) and the Financial Industry Regulatory Authority (FINRA). Anyone selling variable annuities must carry a securities license.

Annuity Regulation Rules by Type

Annuity Type	State Level Regulated	SEC Regulated	FINRA Regulated
Fixed Annuities		❌	❌
Fixed-Indexed Annuities*		Varies	Varies
Variable Annuities

*Only RILAs, a type of fixed-indexed annuity, are registered as securities and regulated by SEC and FINRA

If you’re considering purchasing an annuity, having a general knowledge of how annuities are regulated can help you avoid falling into financial trouble. Use this information to research the company issuing your annuity and the person selling or recommending it. Many of the regulating bodies have tools you can use to find out the background of companies and brokers. You can also file complaints if you have a bad experience.

Annuities come in many forms. They don’t all work the same way and aren’t all regulated the same way or even by the same entities. However, taking the time to understand regulation basics can help you make a more informed decision before you sign a contract.

Brandon Renfro, Ph.D., CFP®, RICP®, EACo-Owner of Belonging Wealth Management

As a Certified Financial Planner™ professional and Retired Income Certified Professional®, Brandon Renfro is well-versed in the financial information and strategies needed to meet retirement goals. In addition to co-owning Belonging Wealth Management and assisting clients, Brandon writes regularly for financial publications.

Federal Regulation of Variable Annuities

Variable annuities are considered securities and are federally regulated by the SEC and FINRA. 

A FINRA rule governing variable annuities establishes standards for people who sell these products. According to FINRA, the representative “must make reasonable efforts to determine the customer’s age, annual income, investment experience, investment objectives, investment time horizon, existing assets, and risk tolerance” before recommending the product. The representative must also have a reasonable basis to believe the consumer would benefit from the annuity.

Sales of variable annuities are a leading source of investor complaints to FINRA. The authority attributes the volume of complaints about variable annuities to their complexity and the confusion surrounding them, which can lead to what regulators deem questionable sales practices.

FINRA also has an online Broker Checker that you can use to investigate the background of any broker or brokerage firm. The site will tell you whether a broker or firm is registered and give you information about a broker’s employment history, any actions taken by regulators, and information about licensing and complaints. Additionally, you can use the SEC Action Lookup search feature to see if the SEC has brought a formal action against an individual.

State Regulation of Annuity Sales

Annuities are regulated at the state level by the authorities that oversee life insurance companies. These insurance commissioners also license annuity issuing companies. Consumers can get information and file complaints about people and businesses registered to sell annuities through their state’s insurance commissioner.

Before being granted a license to sell annuities, an insurance company must comply with strict requirements regarding capital, surplus and finances. State insurance commissioners also investigate and monitor the experience and character of company management to ensure the company will protect the interests of its consumers.

Most states adopt model laws created by the National Association of Insurance Commissioners (NAIC), which the association says promotes uniformity and consistency. The NAIC’s model laws and regulations are designed to encourage best practices for insurance companies. States are free to adopt them, modify them or reject them.

Updates to Suitability Standard

The NAIC’s Suitability in Annuity Transactions Model Regulation set basic standards for recommending annuity products to consumers. The regulation, according to the association, is designed to “ensure the insurance needs and financial objectives of consumers are appropriately met at the time of the transaction.”

The NAIC began work on updating the suitability regulation following the overturn of a federal rule that would have applied stricter standards to professionals who sell and recommend annuities. That U.S. Labor Department rule, known as the fiduciary rule, would have required professionals to act as fiduciaries to their customers. In other words, it would have required them to put their customers’ interests before their own.

The result of the NAIC’s Annuity Suitability Working Group was an update to ensure that any recommendations made to consumers by agents were in the interests of the consumers. According to the NAIC, 40 states had adopted these model revisions as of November 2023.

Model Law for Disclosure

The NAIC Annuity Disclosure Model Regulation requires the disclosure of certain information about annuity contracts. This is designed to protect consumers and encourage education to the public. In general, states require annuity contracts and forms to be filed and approved by the insurance commissioner or the Interstate Insurance Product Regulation Commission, to which more than 44 states belong.

In addition to regulating annuities, each state has a guaranty association that insures annuities and other insurance products in the event the issuing insurance company becomes insolvent. Each state’s guaranty association has its own limits, but the typical statutory coverage limit is $250,000.

State Insurance Websites

Before purchasing an annuity, utilize your state insurance commission to review the record of the insurance company or agent that will issue the annuity. You can also file complaints with the commissioners’ offices.

Each site is different, but annuity information is generally provided in the life insurance section of each website. The NAIC has an online directory with links to each state’s insurance website.

Read More: Insurance Regulatory Information System (IRIS)

U.S. Treasury, the IRS and Annuities

The federal government has various rules that govern how annuities tax-deferment works. Consequently, the U.S. Treasury Department and Internal Revenue Service have a say in the operation and use of annuities. The IRS Publication 939, also known as the General Rule for Pensions and Annuities, explains taxation of annuities.

Over the years, the Treasury and the IRS have issued rules that have allowed for the creation of different annuity products.

For example, Qualified Longevity Annuity Contracts (QLACs) were created by rules issued by the Treasury in 2014 to help retirees manage their savings. QLACs are deferred annuities funded inside qualified retirement plans.

Annuity Regulation FAQs