The national Annuities guide covers how annuities work: accumulation and payout phases, fixed, indexed and variable products, payout options, surrender charges, 1035 exchanges and taxes. This guide covers the Vermont rules: who may sell, DFR's disclosure standards for indexed annuities, the replacement rules, death benefit interest and guaranty protection.

Who may sell

• Fixed and indexed annuities are sold under the life line of authority.
• Variable life and variable annuity products are a separate line in Vermont (8 V.S.A. § 4813g(a)(5)). Because variable products are securities, the producer also needs securities registration.

Indexed annuities (DFR Bulletin 110)

Bulletin 110 treats an indexed annuity as a fixed annuity whose extra, non-guaranteed interest follows an outside index. Its disclosure is meant to keep buyers from confusing it with a variable annuity.

Product traits:

• It must be sold by licensed insurance agents.
• It must meet Vermont's standard nonforfeiture minimum guarantees.
• How the index applies must be set at least one year in advance.

For approval:

• The page-one contract description must include the word "indexed."
• The index must be widely quoted and available on most U.S. business days. A change of index is filed with DFR before use.

The buyer's guide:

• It describes the index and how it's applied, and any caps, participation rates or ratchet design.
• It shows the index values for the most recent five years, the yearly percentage change and the effect on a hypothetical deposit.
• Long-term illustrations may not be used to suggest future performance.
• The insurer keeps a copy signed by the buyer acknowledging receipt.

Sales material must stress the insurance nature and long-term focus of the product, and may not call it an investment vehicle.

Replacement (Reg. I-2001-03)

Vermont's replacement regulation covers annuities as well as life insurance:

• The producer reads and leaves the signed replacement notice with the applicant at application.
• The replacing insurer notifies the existing insurer within five business days.
• The buyer may return the replacement contract within 30 days of delivery for an unconditional full refund. For a variable or market value adjusted contract, the refund is the cash value plus any fees and charges deducted.

Death benefits (8 V.S.A. § 3665b(c))

A death benefit under an annuity is paid within 30 days after proof of loss. Interest is the greater of the rate paid on proceeds left on deposit or 6%, generally from the date of death of the measuring life.

Guaranty protection (8 V.S.A. § 4173(c))

The Vermont Life and Health Insurance Guaranty Association protects up to $250,000 in present value of annuity benefits, including cash surrender and withdrawal values. The association may not be used to sell a policy.

Common exam traps

• Variable annuities need the separate variable line plus securities registration. Indexed annuities don't.
• The page-one description of an indexed annuity must include the word "indexed."
• Indexed annuity disclosure shows five years of index history, and long-term illustrations of future performance aren't allowed.
• An annuity replacement gets a 30-day return right, and the existing insurer is notified within 5 business days.
• Annuity guaranty protection is $250,000.