Key Takeaways
- Arizona requires a 10-day free look period for annuities (20 days for seniors 65+)
- Arizona adopted the NAIC Suitability in Annuity Transactions Model Regulation requiring best interest recommendations
- Annuity replacements require specific disclosures comparing existing and proposed contracts
- Producers must document the basis for annuity recommendations
- Arizona limits penalties for annuity contract surrenders and requires disclosure of all charges
Arizona Annuity Regulations
Arizona has adopted comprehensive annuity regulations to protect consumers from unsuitable sales and deceptive practices.
Free Look Period
Arizona provides free look periods for annuity contracts:
| Buyer Age | Free Look Period |
|---|---|
| Under 65 | 10 days |
| Age 65+ | 20 days |
- Applies to all annuity types (fixed, variable, indexed)
- Buyer can return for full premium refund
- No penalty for exercising free look
- Period begins when contract is delivered
Suitability Requirements
Arizona adopted the NAIC Suitability in Annuity Transactions Model Regulation:
Best Interest Standard
Effective 2023, Arizona requires:
- Recommendations must be in the best interest of the consumer
- Compensation cannot be the primary motivator
- Material conflicts must be identified and avoided or disclosed
- Enhanced documentation requirements
Producer Duties
Before recommending an annuity, the producer must:
- Make reasonable efforts to obtain customer information
- Analyze whether the recommendation is suitable
- Document the basis for the recommendation
- Disclose all material information about the product
Required Information
| Category | Information Required |
|---|---|
| Financial Status | Income, assets, financial needs |
| Tax Status | Tax bracket, qualified vs. non-qualified funds |
| Investment Objectives | Goals, time horizon, risk tolerance |
| Existing Coverage | Current annuities and life insurance |
| Liquidity Needs | Expected need for funds |
Senior Protections
Arizona provides additional protections for senior annuity buyers:
Extended Free Look
- 20-day free look for buyers age 65 and older
- Additional time to consult with family or advisors
- Cannot pressure or rush the sale
Enhanced Suitability
For senior buyers, producers must especially consider:
- Liquidity needs and access to funds
- Surrender charge impact relative to life expectancy
- Suitability of long surrender periods
- Impact on Medicaid eligibility
Exam Tip: Arizona extends the free look period to 20 days for all insurance products (including annuities) sold to persons age 65 and older.
Surrender Charge Disclosures
Arizona requires clear disclosure of surrender charges:
| Disclosure Item | Requirement |
|---|---|
| Surrender Schedule | Must be clearly stated in contract |
| Free Withdrawal | Must disclose any penalty-free withdrawal provisions |
| Impact of Withdrawal | Must explain effect on contract value |
| Timing | Disclosures before purchase |
Replacement Requirements
When replacing an existing annuity, producers must:
Documentation Required
- Comparison statement - Side-by-side comparison of old and new contract
- Replacement form - Signed acknowledgment of replacement
- Suitability analysis - Why replacement is appropriate
- Disclosure of costs - Including new surrender charges
Red Flags for Inappropriate Replacements
DIFI scrutinizes replacements for:
- Short holding periods before replacement
- Surrender charges not fully explained
- New surrender charge period starting over
- Commission-motivated churning
- Unsuitable products for client's age and needs
How long is the free look period for an annuity sold to a 68-year-old Arizona resident?
Under Arizona's annuity suitability rules, what standard must producers meet when recommending an annuity?