Annuity types, phases, payout options and taxation are covered in the national Annuities guide. North Dakota puts its annuity best interest standard in statute, at N.D.C.C. chapter 26.1-34.2. It also sets contract rules for annuities in 26.1-34-01 and 26.1-34-01.1, including a 20-day free look.

Best interest standard (26.1-34.2-03)

When recommending an annuity, a producer must act in the consumer's best interest, based on the consumer's profile. The producer may not put the producer's or insurer's financial interest ahead of the consumer's. The standard has four obligations.

1. Care

• Know the consumer's profile: age, income, financial situation, objectives, time horizon, liquidity needs, risk tolerance and tax status (26.1-34.2-02(4)).
• Replacements. In a replacement, consider:
  • surrender charges or a new surrender period
  • lost benefits and increased fees
  • whether the new annuity is a substantial benefit
  • any other exchanges in the past 60 months
• The care obligation isn't a fiduciary duty. It doesn't require recommending the annuity with the lowest compensation.

2. Disclosure. Tell the consumer:

• your role and the products you're licensed to sell
• the insurers you represent
• the sources and types of cash and noncash compensation

On request, give a reasonable estimate of cash compensation, which may be a range.

3. Conflict of interest. Identify and avoid or reasonably manage material conflicts.

4. Documentation

• Keep a written record of the recommendation and its basis.
• If the consumer refuses to provide information, get a signed statement of the refusal.
• If the consumer buys an annuity you didn't recommend, get a signed acknowledgment.

Other best interest rules

• Insurer duties (26.1-34.2-03(3), 26.1-34.2-04). The insurer is responsible for compliance and may be ordered to take corrective action for a producer's violation. Its supervision system must eliminate sales contests, quotas and bonuses tied to specific annuities within a limited period.
• No interference. A producer may not dissuade a consumer from answering an insurer's questions truthfully, filing a complaint or cooperating with an investigation (26.1-34.2-03(4)).
• Licensing. No license beyond the producer license with the right line is needed, unless the producer gives securities advice.
• Exempt. Annuities funding ERISA plans, 401(k)/403(b) and government plans, structured settlements and prepaid funeral contracts (26.1-34.2-01).
• Records are kept 10 years after the transaction (26.1-34.2-05).

Training (26.1-34.2-03.1)

• A one-time 4-hour annuity training course is required before selling annuities.
• Substantially similar training completed in another state counts.
• The course can't include marketing, sales techniques or specific information about one insurer's products.
• The insurer verifies completion before letting the producer sell its annuities.

Contract rules

• Free look (26.1-34-01.1). An annuity buyer may return the contract within 20 days after delivery. For most annuities the premium is refunded. For variable annuities, the buyer gets the contract value plus all expense charges.
• Nonforfeiture (26.1-34-01). A paid-up annuity benefit is required if payments stop. The insurer must reserve the right to defer a cash surrender for up to six months after demand.
• Death claims (26.1-34-01(5)) are settled within two months of proof, with reasonable interest from the date of death.
• Advertising (45-04-10-03(16)). An illustration above guaranteed rates must be paired with an equally prominent illustration at the guaranteed rates.

Licensing and protection

• Fixed and indexed annuities fall under the life line. Variable annuities require the variable line, and that requires a securities license first (45-02-02-11).
• The North Dakota Life and Health Insurance Guaranty Association covers annuities up to $250,000 in present value per person, including cash surrender and withdrawal values (26.1-38.1-01(4)).

Common exam traps

• North Dakota's best interest standard is in statute (26.1-34.2). Records are kept 10 years.
• Replacement analysis looks back 60 months at other exchanges.
• The annuity free look is 20 days. For a variable annuity, the refund is value plus charges.
• Annuity training is a one-time 4 hours, and the insurer verifies it.
• The care obligation doesn't require choosing the lowest-commission product.