The national Annuities guide covers how annuities work: phases, fixed, indexed and variable products, payout options, surrender charges, 1035 exchanges and taxes. This guide covers the Washington rules:

• the best interest standard in RCW 48.23.015
• required annuity training
• disclosure rules
• the replacement refund right
• guaranty protection

Who may sell

• Fixed and indexed annuities are sold under the life line, which includes annuity benefits (RCW 48.17.170(1)(a)).
• Variable annuities need the variable life and variable annuity line and a securities salesperson license from the Department of Financial Institutions, through a FINRA member broker-dealer (WAC 284-17-015).
• Before selling any annuity, a producer completes a one-time 4-credit annuity training course that covers the best interest standard (WAC 284-17-265).
  • The course can't be issuer- or product-specific.
  • Product training comes from each insurer.

Best interest (RCW 48.23.015)

A producer recommending an annuity acts in the consumer's best interest and doesn't put the producer's or insurer's financial interest ahead of the consumer's. The producer meets four obligations:

1. Care. Know the consumer's profile and have a reasonable basis to believe the annuity addresses the consumer's situation over the life of the product. The profile includes:
   • age, income and financial situation
   • objectives and time horizon
   • liquidity needs and liquid net worth
   • risk tolerance
   • tax status
2. Disclosure. Before the recommendation, disclose:
   • the producer's relationship to the consumer
   • the products the producer is licensed to sell
   • the insurers represented
   • the sources and types of compensation
3. Conflict of interest. Identify material conflicts and avoid or disclose them.
4. Documentation. Record the basis for the recommendation. A consumer who refuses to give profile information, or buys an annuity that wasn't recommended, signs a statement on the prescribed form.

For exchanges and replacements, the producer considers:

• surrender charges and lost benefits
• whether the new annuity substantially benefits the consumer
• any other exchange in the past 60 months

What the standard doesn't require:

• a fiduciary duty
• recommending the lowest-compensation product
• ongoing monitoring

Records of the consumer information, disclosures and the basis for recommendations are kept five years after the transaction (RCW 48.23.015(10)).

Disclosure and advertising

• A contract summary is given before the insurer accepts the first payment. If the contract has an unconditional refund right of at least 10 days, it may come with the contract instead (WAC 284-23-350).
• Sales material may not say or imply that an annuity is the same as a savings account or bank deposit (WAC 284-23-360(6)).
• The producer discloses that they are acting as an insurance producer (WAC 284-23-360(2)).

Free look and replacement

• Washington's 10-day free look statute (RCW 48.23.380) is for life insurance. Washington has no general free look for annuities.
• When an annuity replaces existing coverage, the replacing insurer gives a 20-day unconditional refund right from delivery (WAC 284-23-455(4)). The life replacement rules (notice, contacting the existing insurer within three working days) apply to annuities too.

Guaranty protection

The Washington Life and Disability Insurance Guaranty Association covers up to $500,000 in present value of annuity benefits, including cash surrender and withdrawal values, within a $500,000 aggregate per life (RCW 48.32A.025). Any portion where the owner bears the investment risk, such as a variable separate account, isn't covered.

Common exam traps

• Best interest has four obligations: care, disclosure, conflict of interest and documentation.
• It isn't a fiduciary duty, doesn't require the cheapest product and doesn't require ongoing monitoring.
• The look-back for prior exchanges is 60 months. Records are kept 5 years.
• Annuity training is 4 credits, once, and can't be product-specific.
• An annuity has no general free look in Washington, but a replacement gets 20 days.
• Variable annuities need a securities license plus the variable line.
• Guaranty coverage is $500,000, and it excludes the variable portion.