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Suitability of Annuity and Life Insurance Transactions for Seniors by Jeff King


Course Information
Course Title: Suitability of Annuity and Life Insurance Transactions for Seniors
Course Number: OLT # INSCE014               DOI # 74729
Course Description: This 3-hour continuing education course is on the subject of Suitability in Annuity and Life Insurance transactions.
Location: Completely Online
Availability: 24/7
3hr CE Credit: All licenses (except 3-20/T31-20
Course Outcomes
Course Outcomes:

The student will successfully master the material and will achieve a final grade of 70% or better to pass the course. OnLine Training will report the student's completion to the Florida Department of Financial Services. A Certificate of Completion will be issued to the student by email.

Course Outline


  1. Syllabus/Outline
  2. Florida Statute 627.4554 - Annuity Investments by Seniors
  3. Introduction
  4. Instructions on How to Move Through the Course

Purpose - (5 minutes)

  1. Discuss purpose of new legislation governing the sale of annuities to seniors
    1. Ethical violations
      1. Fraudulent signatures
      2. Use of fake or misleading designations by Agents
      3. Twisting
      4. Churning
    2. Complaints
      1. A growing number of cases where Seniors have been mislead
      2. DFS - 351 investigations in 2006-2007 (CFO Press Release 3/18/08)
      3. New cases are increasing annually

Overview of Recent Legislation and Rules - (5 minutes)

  1. 2010 Legislative Enhancements from the "Safeguard Our Seniors Act"
    1. Amended definition of "affiliated party"
    2. Prohibits Agent as beneficiary
    3. Defines Agent exemption from CE requirement
    4. New disciplinary actions
    5. New license requirements
    6. New Twisting and Churning penalties
    7. Video Deposition allowed
    8. New "Free Look" period
    9. New Policy Cover Sheet requirement
    10. Defines Accredited Investor
    11. Agent may be required to make monetary restitution to Seniors
    12. Limits surrender charges and period
  2. Other recent amendments to legislation governing the sale of Annuities to Seniors
    1. NAIC Model Law - the state is enacting an NAIC model law originally designed to protect seniors when they purchase or exchange annuity products
    2. Dodd-Frank - The new law also implements Sec. 989A of the Dodd-Frank Wall Street Reform and Consumer Protection Act

Definitions - (10 minutes)

  1. Annuity Contract - Per FS 627.4554
    1. Fixed
    2. Equity-Indexed
    3. Fixed Equity-Indexed
    4. Variable
  2. Suitability
  3. Ethical Conduct
  4. Recommendation - Per FS 627.4554
  5. Accredited Investor
    1. Net Worth over $1 million
    2. Based on annual income
  6. Senior Consumers - Per FS 627.4554
    1. 65 or older
    2. Joint purchase - if any of the parties are 65 or older
  7. Affiliated Party
    1. Director
    2. Statement filer
    3. Stockholder
    4. Independent contractor
    5. Third-party marketer

Products - (30 minutes)

  1. Fixed Annuities
    1. Fixed dollar income payments
    2. No loss to principal
  2. Equity Indexed Annuities (including Market Value Adjusted Annuities)
    1. An annuity with the potential for market returns, with a guaranteed minimum interest rate.
    2. Factors unique to Equity Indexed Annuities:
      1. Interest rate caps
      2. Participation rates
      3. Index crediting methods
    3. Fees and Charges:
      1. Surrender charges
      2. Administration fees
      3. Market value adjustments
      4. Asset fees
  3. Variable Annuities
    1. Value depends on value of the underlying investments
    2. Variable payouts or fixed payments
  4. Group Annuities
    1. Used to fund many types of tax-sheltered retirement plans
    2. May be sponsored by employers, unions or other groups
    3. May be governed by the laws of another State, since the annuity may have multi-state membership
    4. Lower costs than individual annuities
  5. Emerging Annuity Features
    1. Heirs allowed to receive income
    2. Inflation protection
    3. Withdrawals for catastrophic events

Duties of Insurer and Insurance Agents - (25 minutes)

  1. Determine objectively reasonable basis for believing the recommendation is suitable for the consumer on the basis of:
    1. Facts disclosed about the Senior consumer's investments and other insurance
    2. Financial Situation
    3. Needs
  2. Discussion on all the minimum information required to be gathered by an Agent pursuant to 627.4554(4), Florida Statutes:
    1. Personal information
    2. Investment objectives: What is it the individual desires to achieve?
    3. Applicant's risk tolerance
    4. Existing assets, including investment holdings
    5. Applicant's annual income
    6. Tax status (i.e. tax bracket, filing status, etc.)
    7. Applicant's liquid new worth and liquidity needs
    8. Future financial considerations
    9. Intended use of the annuity
    10. Source of funds to be used for the purchase of the annuity
    11. Any other information used or considered by the agent or insurer in making recommendation to consumers regarding the purchase or exchange of an annuity contract (See the DFS Annuity Suitability Questionnaire (DFS-H1-1980) located in the supplement section
  3. If currently owning an annuity or annuities, determine:
    1. Type of contract(s)
    2. Issue date(s)
    3. Maturity date(s)
    4. Allocation of funds within the contract
    5. Terms of surrender charges
    6. Contract riders or endorsements
    7. Liquidity of contract
      1. Prior to maturity
      2. At maturity
  4. Per Florida Statute 627.4554(d), if exchanging an annuity, provide a comparison of differences between contracts, including:
    1. Comparison of benefits, terms and limitations
    2. Comparison of fees and charges
    3. Written basis for recommended changes
    4. Such other information considered relevant by the agent and insurer in making recommendation to the consumer regarding replacement or exchange of an annuity contract. (See the DFS Disclosure and Comparison Form (DFS-H1_1981) located in the supplement section.
  5. Disclosure
    1. Crediting Methods and Potential Tax Implications
      1. Source of Interest Credits
      2. Income Taxation of Interest Credits
      3. When income tax deferral is advantageous
      4. Crediting formulas
      5. Guaranteed Interest Credits
    2. Risk factors
      1. Loss of principal
      2. Known versus expected interest
      3. Reallocation limitations
    3. Changes in market or company financial conditions (see the DFS Disclosure and Comparison Form (DFS-H1-1981) located in the supplement section.
  6. An insurer or insurance agent must ensure that a system to supervise recommendations, are in compliance with Florida Statute 626.4554
    1. Which may be established and maintained by:
      1. Insurer or Insurance Agent
      2. A Managing General Agent and an Insurance company
      3. A third party contract including Managing General Agent or an insurance company
    2. Such a system should include but is not limited to:
      1. Written procedures
      2. Periodic reviews

Ethical Considerations - (10 minutes)

  1. Policyholder Bill of Rights - FS 626.9641
  2. Agent's Code of Ethics - DFS Rule 69B-215.210 F.A.C. and 629.797 Florida Statutes
  3. Agent's fiduciary responsibility to client
    1. Does applicant understand basic concept of annuities?
    2. Does applicant have sufficient assets to meet or exceed current financial objectives?
    3. Are other financial vehicles more suitable to meet the applicant financial objectives?
    4. Is the sale in the best interest of the client and his family?
    5. Does the transaction make sense?
    6. Discussion of Case Law

Review and Quiz #1(For Grade)(10 minutes)

Mitigation of Responsibility - (10 minutes)

  1. PER F. S. 627.4554
    1. The Office may order an insurer to take corrective action for any Senior consumer harmed in violation of the law
    2. The Department may order:
      1. An insurance Agent to take corrective action for Senior consumers harmed
      2. A MGA or insurance agency to take corrective action for any Senior consumers harmed in violation of the law
      3. A penalty for violating the Florida Insurance Code may be reduced or eliminated if the corrective action was taken promptly after the violation was discovered
  2. Pertains to Insurer, Agent and/or MGA
    1. DFS may order responsible party to take reasonably appropriate corrective action including but not limited to:
      1. Rescission of policy or contract and;
      2. Full refund of premiums paid or accumulation value, whichever is greater
    2. Discussion of what constitutes harm to a consumer - The Federal Trade Commission defines it as an Unfair Trade Practice if:
      1. It offends public policy
      2. It is immoral, unethical, oppressive or unscrupulous
      3. It causes substantial injury to consumers (or competitors or other business persons)
      4. Case Law: Words and sentences can be technically true, but be framed as to mislead or deceive people into purchasing something they would not otherwise do
      5. Case Law: False and misleading statements can mislead the public and unfairly divert business away from competitors
      6. Case Law: Defines an unfair practice as: one that 'offends public policy' and one that is 'immoral, unethical, oppressive, unscrupulous or substantially injurious to consumers'

Unfair Methods of Competition and Unfair or Deceptive Acts - (10 minutes)

  1. Churning FS 626.9541 (1)(aa)
    1. Defined as the practice of using policy values in an existing life insurance policy or annuity, to purchase another insurance policy or annuity with the same insurer, for the purpose of earning additional premium or compensation
    2. Replacement form required to be completed by insurance company, to show applicant what they will lose by using existing policy values to purchase a new policy
    3. Insurance Companies required to adopt written procedures to avoid the practice of churning
  2. Twisting FS 626.9541 (1)(l); 69B-215.215 F.A.C
    1. Defined as knowingly making fraudulent or misleading comparisons of an insurance policy or company, for the purpose of inducing a person to lapse or surrender an insurance policy and take out a new one with another insurer
    2. Declared to be unethical
  3. Fraudulent signatures FS 626.9541 (1)(ee)
    1. Defined as willfully submitting to an insurer on behalf of a consumer an insurance application or policy document with a fraudulent or false signature
  4. Unlawful or deceptive use of designations FS 626.9541 (1)(ff)
    1. Cannot use designation to imply special knowledge or training
    2. Use of term Financial Advisor
    3. Licensee cannot imply they are qualified to recommend financial products if they are not
    4. Limited use of other designations

Penalties - (10 minutes)

  1. Per 626.9521(3)(a) F.S. - Twisting and Churning
    1. Twisting - Misdemeanor of the first degree and administrative fines
    2. Churning - Misdemeanor of the first degree and administrative fines
  2. Per 626.9521(3)(b) F.S. - Fraudulent or False Signatures
    1. Felony of third degree and administrative fines
  3. Per 626.9521(5) F.S. - Video Dispositions
    1. Allows the use of video depositions in administrative hearings
  4. Penalties related to DFS Rule Chapter 69B-231 F.A.C.
    1. Outlines penalties for violating 626.611
    2. Outlines penalties for violating 626.621
    3. Outlines penalties for violating 626.9541(1)
    4. Outlines penalties for violating other insurance rules and codes

Life Insurance Solicitation: Per 626.99(4) Florida Statutes - Disclosure Requirements - (10 minutes)

  1. Insurer responsibility prior to accepting initial premium
    1. Buyer's Guide
    2. "Free Look"
      1. Life insurance
      2. Annuities
    3. Unconditional refund of premium
      1. Fixed Annuities
      2. Variable or Market Value Annuity
    4. Cover Page attached
      1. Inform of unconditional refund
      2. Contact information for the issuing company and selling agent. The department's toll-free help line and any other information required by the department by rule.
      3. Cover Page is part of the policy
    5. In addition, upon request, provide a Buyer's Guide or Policy Summary to a prospective purchaser
  2. Per 626.99(5) F.S. - General Rules Relating to Solicitation
    1. Insurer to maintain a Forms File
    2. Agent and Insurance Company identity required
    3. Restricted use of titles
    4. Statement that dividends are not guaranteed
    5. Discussion of the time-value of money
    6. Life insurance cost indexes involving dividends
    7. Maximum annual premium disclosed
    8. Replacement policy disclosures
    9. Replacement with a registered product

Grounds for Suspension and Revocation of License - (5 minutes)

  1. Per 626.621(13) F.S. - disciplinary action by the Department when licensee is disciplined under securities or related license
    1. The Department may suspend or revoke a license or appointment if they violated securities rules
    2. May include being disciplined by securities, commodities or options regulatory agencies
  2. Per 626.641(3)(b) F.S. - Prohibition of license application for an individual whose previous license was revoked due to solicitation or sale of an insurance product to a Senior.
    1. Applies to both Agent and CSR
    2. No license of any kind, if previously revoked for Senior crimes

Education Requirements (Per 626.2815 F.S.) - (5 minutes)

  1. Application - Life licensed Agent must take a 3-hr course on Senior Suitability
  2. Exception - Per 626.2815(3)(k) F.S.,
    1. Agent not actively soliciting or servicing any life or annuity contracts
    2. Hours may be used to satisfy the Ethics requirement

Recordkeeping (per 627.4554(6) F.S.) - (5 minutes)

  1. Maintain files for five years
  2. Records that should to be maintained
    1. Applications
    2. Questionnaires
    3. Illustrations
    4. Correspondence
    5. Account Review documents
    6. Account statements

Representing Unauthorized Entities - (5 minutes)

  1. Prohibited under F.S. 626.901
  2. Unauthorized Entities engaging in Insurance are a serious and growing problem in FL
  3. Agents Representing Unauthorized Entities place themselves and their clients at risk
  4. Penalties for Agents representing or aiding an Unauthorized Insurer
  5. Agent requirements to perform due diligence
  6. Florida Unauthorized Entities Statement

Case Studies - (10 minutes)

  1. Case Study #1
  2. Case Study #2
  3. Case Study #3
  4. Case Study #4

Review and Quiz #2 (For Grade)

Final Exam (For Grade)

Grade Submittal Form
Instructor Information
Name: Jeff King
Office Location: 2669 Forest Hill Blvd. STE. 207
West Palm Beach, FL 33406
Phone: (561) 283-0333 or fax (561) 357-4957
Biography: Jeff King is a licensed insurance agent and President of King Insurance & Financial Services, Inc., a full service independent insurance agency in Cape Canaveral, Florida. He has been a licensed Life, Health, and Property & Casualty agent since 1989. Mr. King has taught insurance classes at several community colleges. He is an active member of the National Association of Health Underwriters, the National Association of Insurance and Financial Advisors and the Florida Association of Independent Agents.

Last Updated: July 13, 2012 by OnLine Training Institute