The national Annuities guide covers how annuities work: phases, fixed, indexed and variable products, payout options, surrender charges, 1035 exchanges and taxes. Kentucky adds a best interest standard and a training requirement (806 KAR 12:120 and 806 KAR 9:025). It also has statutory contract provisions (KRS 304.15-190, 304.15-200), shares its replacement rules with life insurance, and limits the creditor exemption for annuity payments.

Who may sell

• Fixed annuities are sold under the life line.
• Variable annuities need the variable life and variable annuity line, which requires an active life line. There is no state exam for the variable line. The seller also needs securities registration.
• Before selling any annuity, a life agent completes a 4-hour initial annuity training course, unless substantially similar training was completed in another state (806 KAR 9:025 Sec. 5(2)(c)). The insurer must confirm the training is complete before letting the agent sell its annuities (806 KAR 12:120 Sec. 4).

Best interest standard (806 KAR 12:120)

When a licensee recommends an annuity, the licensee must act in the consumer's best interest and not put the licensee's own financial interest ahead of the consumer's. The standard has four obligations:

1. Care. Make reasonable efforts to learn the consumer's profile and have a reasonable basis for the recommendation. The profile includes:
   • age, income and financial situation
   • experience and objectives
   • intended use and time horizon
   • existing assets and liquidity needs
   • liquid net worth and risk tolerance
   • funding source and tax status
2. Disclosure. Explain the relationship, the products offered, and how the licensee is paid.
3. Conflict of interest. Identify material conflicts and avoid them or disclose them.
4. Documentation. Record the recommendation and its basis.

The obligations don't apply when no recommendation is made, including when a consumer refuses to give profile information and no recommendation follows, or buys without any recommendation.

Contract provisions

• Grace period. A deferred annuity allows one month, but not less than 30 days, for payments after the first. The contract stays in force during that time (KRS 304.15-190).
• Incontestability. If the insurer asked for statements other than age, sex and identity, the annuity becomes incontestable after two years, except for nonpayment (304.15-200).

Replacement

Kentucky's replacement rules (KRS 304.12-030; 806 KAR 12:080) cover annuities as well as life insurance:

• The agent reads and leaves Office Form A when taking the application.
• The replacing insurer notifies the existing insurer within five business days.
• The owner has 30 days after delivery to return the new contract for an unconditional refund.

Details are in the Kentucky life policy provisions guide.

Creditors and the guaranty association

• Creditor exemption. Annuity benefits presently payable to an annuitant are exempt from creditors only up to $350 per month. Payments above that may be garnished like wages (KRS 304.14-330).
• Guaranty association. The Kentucky Life and Health Insurance Guaranty Association protects annuity present value up to $250,000 (304.42-030).
• No sales pitch. An agent may not use the association's existence to sell an annuity or call it "risk-free" because of the association (304.42-190).

Common exam traps

• Best interest has four obligations: care, disclosure, conflict of interest and documentation.
• With no recommendation, there are no best interest duties.
• Annuity training is 4 hours, and the insurer confirms it was completed.
• The annuity grace period is one month, at least 30 days.
• The annuity creditor exemption is $350 a month.
• The guaranty limit is $250,000 of annuity present value.