Key Takeaways
- Illinois requires the Buyer's Guide for annuities to be delivered at or before application
- Contract summary must explain all fees, charges, and surrender penalties
- Illustration requirements apply to fixed indexed and variable annuities
- Disclosure must include information about death benefits and annuitization options
- Producers must explain the difference between qualified and non-qualified annuities
Annuity Disclosure Requirements
Illinois has specific disclosure requirements for annuity sales to ensure consumers understand these complex products before purchasing.
Buyer's Guide Requirement
Illinois requires delivery of a Buyer's Guide for all annuity sales:
| Requirement | Details |
|---|---|
| Timing | At or before application |
| Format | Written document |
| Content | General annuity education |
| Purpose | Help consumer understand product type |
Buyer's Guide Contents
The Buyer's Guide must explain:
- What an annuity is and how it works
- Different types of annuities
- How annuities differ from other investments
- Tax implications
- Questions to ask before buying
Contract Summary Requirements
Beyond the Buyer's Guide, Illinois requires a contract summary that includes:
Fee and Charge Disclosures
| Item | Must Disclose |
|---|---|
| Surrender Charges | Schedule and duration |
| Administrative Fees | Annual or monthly charges |
| Mortality & Expense | M&E charges for variable annuities |
| Fund Expenses | Subaccount expenses |
| Premium Taxes | If applicable |
Product Feature Disclosures
- Death benefit provisions
- Annuitization options
- Free withdrawal provisions
- Guaranteed minimum benefits (if any)
- Interest crediting methods (for fixed indexed)
Exam Tip: Illinois requires both a general Buyer's Guide AND a contract-specific summary. The summary must detail all fees and charges.
Illustration Requirements
For fixed indexed and variable annuities, Illinois requires illustrations that show:
Fixed Indexed Annuity Illustrations
| Element | Requirement |
|---|---|
| Guaranteed Values | Minimum guaranteed at each duration |
| Non-Guaranteed Values | Based on hypothetical returns |
| Historical Scenarios | May show historical index performance |
| Cap and Participation | Current rates clearly disclosed |
Variable Annuity Illustrations
- Hypothetical performance scenarios
- Impact of fees on accumulation
- Guaranteed minimum death benefit examples
- Living benefit rider illustrations (if applicable)
Qualified vs. Non-Qualified Disclosure
Producers must explain the tax implications:
Qualified Annuities
- Funded with pre-tax dollars (IRA, 401(k) rollovers)
- All distributions taxed as ordinary income
- Subject to Required Minimum Distributions (RMDs)
- 10% penalty for withdrawals before age 59½
Non-Qualified Annuities
- Funded with after-tax dollars
- Only earnings taxed upon withdrawal (LIFO)
- No RMDs during accumulation
- 10% penalty for earnings withdrawn before 59½
Exam Tip: Producers must explain that putting after-tax money into a qualified annuity may not provide additional tax benefits since the money is already tax-deferred.
When must the annuity Buyer's Guide be delivered in Illinois?
What is the tax treatment of distributions from a qualified annuity?
Which of the following must be disclosed in an annuity contract summary in Illinois?