Are Annuities Regulated?
Annuities are regulated as an insurance product, and some types of annuities are also regulated as securities.
Regulation of Annuities as an Insurance Product
Only life insurance companies are permitted issue annuity contracts to consumers. Insurance companies are regulated by the individual states. This is why annuity contracts or options available in some states may not be available in others.
Regulation of Annuities as an Investment Product
Annuities may have features of both life insurance and investment products, and therefore some types of annuities are subject to regulation by the SEC as securities under the federal securities laws:
- Fixed annuities are not securities and are not regulated by the SEC.
- Variable annuities are securities and are regulated by the SEC. The SEC requires that all charges and fees applicable to a variable annuity are described in great detail in a prospectus that must be offered to each variable annuity customer.
- Indexed annuities also combine some features of insurance products (e.g., a guaranteed minimum return) and some features of securities (e.g., a return linked to equity markets). Depending on the mix of features, an indexed annuity may or may not be a security. Most indexed annuities are not regulated by the SEC.
Regulation of Annuities by the IRS
Annuity contracts are defined by the Internal Revenue Code, which governs their federal tax treatment.
Regulation of Companies and People Who Sell Annuities
Insurance companies and their agents are regulated by state insurance regulators.
The sale of variable annuities and other annuities classified as securities is regulated by FINRA (Financial Industry Regulatory Authority), an independent not-for-profit organization empowered by the federal government to protect investors from fraud and bad practices.
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