Are All Annuities Regulated?
All annuities are regulated at the state level by each state’s insurance commissioner. 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.
Key Facts About Annuity Regulations
- Because all annuities are regulated on a state level, you can review the record of the insurance company or agent through your state’s insurance website.
- Only a select few annuities, like RILAs and variable annuities, are regulated at the federal level.
- The NAIC has made updates to its annuity suitability standards, which ensure annuities meet the consumers’ financial objectives and needs.
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 also carry a securities license.
Annuity Regulation Rules by Type
| Annuity Type | State Level Regulated | SEC Regulated | FINRA Regulated |
| Fixed Annuities |  | ❌ | ❌ |
| Fixed Index Annuities | | ❌ | ❌ |
| Registered Index-Linked Annuities | | | |
| Variable Annuities | | | |
If you’re considering buying 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.
For example, you can access FINRA’s online Broker Checker tool to investigate the background of any broker or brokerage firm. The site tells you whether a broker or firm is registered, discloses any actions taken by regulators and gives you information about the broker’s employment history, licensing and complaint record.
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 ManagementAs 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. 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, according to the rule. 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 to their complexity and the confusion surrounding them, which can lead to what regulators deem “questionable sales practices.”
If you have a complaint about sales practices related to variable annuities, report your complaint to the FINRA District office near you.
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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 department.
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 are designed to encourage best practices for insurance companies and promote uniformity and consistency across the U.S. States are free to adopt them, modify them or reject them.
Updates to Suitability Standard
The NAIC’s Suitability in Annuity Transactions Model Regulation sets 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 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 by agents properly addressed consumers’ financial goals.
Forty states had adopted these model revisions as of November 2023, according to the NAIC.
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 public education.
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 46 states, Washington D.C. and Puerto Rico belong.
NAIC Disclosure Standards for Annuities
- Applicant must receive the disclosure document and the Buyer’s Guide.
- If the Buyer’s Guide and disclosure document are not provided at or before the time of application, the applicant will have a free- look period of at least 15 days to return the annuity contract without penalty. This is in addition to any other free- look period required by law.
- The disclosure document must include:
- The insurer’s legal name, physical address, website address and telephone number
- The generic name of the contract (specifying that it’s an annuity), the company product name and the form number
- The contract’s and its and benefits, highlighting its long-term nature and providing any applicable examples
- An explanation of charges and fees
- Guaranteed rate or indexed crediting rate formula information, along with a notice that rates are subject to change
- Insurers must define terms used in the disclosure statement that the public may not understand
Source: NAIC
In addition to regulating annuities, each state has guaranty associations that insure annuities and other insurance products in the event the issuing insurance company becomes insolvent. Each state’s guaranty associations have their own limits, but the typical statutory coverage limit is $250,000 for annuities.
State Insurance Websites
Before purchasing an annuity, utilize your state’s insurance department to review the record of the insurance company or agent that will issue the annuity. You can also file complaints with the commissioners’ office.
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.
U.S. Treasury, the IRS and Annuities
The federal government has various rules that govern how annuity 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 the 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.
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Annuity Regulation FAQs
Fixed and fixed index annuities are not federally regulated by the SEC. Variable annuities and RILAs are considered securities subject to SEC regulation.
Annuities are not regulated or protected by the FDIC, like other financial savings vehicles, such as saving accounts and certificates of deposit (CDs), are.
