How annuities work (accumulation and payout, fixed, indexed and variable products, payout options and taxation) is covered in the national Annuities guide. This guide covers New Mexico's annuity rules: required contract provisions (NMSA 1978, 59A-20), the best interest standard and training rule (13.9.20 NMAC), disclosure and free look (13.9.12 NMAC), and guaranty limits.

Required provisions in annuity contracts

• Grace period: annuity and pure endowment contracts allow one month, but not less than 30 days, for payments after the first (NMSA 1978, 59A-20-18).
• Incontestability: incontestable after two years during the lifetime of the person whose statements were required, except for nonpayment (NMSA 1978, 59A-20-19).
• Misstatement of age or sex: benefits are adjusted to what the payments would have bought at the correct age or sex. Overpayments can be recovered from later payments (NMSA 1978, 59A-20-21).

Disclosure and free look (13.9.12 NMAC)

When the buyer's guide and disclosure document aren't given at or before application, the contract must allow a free look of at least 15 days to return it (13.9.12.8(C) NMAC).

The best interest standard (13.9.20 NMAC)

• A producer recommending an annuity must act in the consumer's best interest and may not put the producer's or insurer's financial interest ahead of the consumer's (13.9.20.9(A) NMAC).
• The producer meets this standard through four obligations: care, disclosure, conflict of interest and documentation.
• The producer keeps the information relied on so the basis for the recommendation can be reviewed.

Annuity training

Producers who sell annuities must complete a one-time OSI-approved annuity training course worth at least four CE credits before selling (13.9.20.10 NMAC).

Variable annuities

A variable annuity is a security. The producer needs the variable life and variable annuity line, which requires a life license and a securities license (NMSA 1978, 59A-12-17(B)).

Guaranty association limits

The New Mexico Life and Health Insurance Guaranty Association covers annuity benefits up to $250,000 in present value, including cash surrender and withdrawal values (NMSA 1978, 59A-42-4(F)(2)(c)). Portions of a contract that the insurer doesn't guarantee, or where the owner bears the risk, aren't covered (59A-42-4(E)(1)).

Common exam traps

• Annuity free look is 15 days when the buyer's guide and disclosure weren't given at application.
• Annuity grace period: one month, but at least 30 days.
• Best interest has four parts: care, disclosure, conflict of interest and documentation.
• Training: a one-time course of at least four credits before selling annuities.
• Guaranty limit: $250,000 for annuities, compared with $300,000 for life death benefits.