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Best interest rules for annuity sales

What the NAIC annuity best interest model (#275) requires of agents and insurers, how states adopted it, how Reg BI and New York differ, and what to ask.

4LifeInsurance · Published October 4, 2026

When someone recommends an annuity to you, state insurance law now generally requires them to act in your best interest, not merely to recommend something "suitable." The standard comes from the NAIC's Suitability in Annuity Transactions Model Regulation (#275), revised in 2020 and adopted in some form by essentially every state. It does not ban commissions or require the lowest-cost product; it requires a documented, reasonable recommendation that does not put the seller's financial interest ahead of yours.

What changed in 2020

The original model, first issued in 2003, asked whether an annuity was suitable given the buyer's finances. On February 13, 2020 the NAIC Executive Committee adopted revisions that added a best interest standard, according to the NAIC. The revised model says a producer, when making a recommendation, must act in the consumer's best interest at the time of the recommendation, without placing the producer's or insurer's financial interest ahead of the consumer's. The prior suitability standard remains the floor: the producer needs a reasonable basis to believe the annuity addresses the consumer's needs and objectives.

The four obligations

  1. Care. The producer must know the consumer's profile (age, income, financial situation and needs, existing assets, liquidity needs, risk tolerance, tax status, intended use of the annuity and goals) and have a reasonable basis to believe the recommended annuity effectively addresses it. This includes understanding the product's features, such as surrender charges, riders, fees and limits on growth. The producer must consider reasonably available alternatives within the scope of the producer's authority.
  2. Disclosure. Before recommending, the producer must disclose, in a prescribed form, the producer's role, the types of compensation and the limits on the products the producer can offer.
  3. Conflict of interest. The producer and insurer must identify and avoid or reasonably manage and disclose material conflicts. The model says compensation incentives are a conflict to manage, not forbidden.
  4. Documentation. The producer must record the basis for the recommendation, including when a consumer declines to provide information or insists on a product other than the one recommended.

The insurer shares responsibility: it must have a supervision system reasonably designed to achieve compliance, review recommendations, and see that producers are trained on the annuity products they sell and on the rule. Insurers may not rely only on the producer's say-so. The model also contains training requirements for producers who sell annuities.

Where the rules differ

  • State adoption. The NAIC publishes model regulations; each state must adopt its own version. New Jersey became the 50th state to adopt best interest rules for annuities in April 2025, according to Insurance Business, with 47 states following the NAIC's best interest framework. Details, effective dates and exemptions vary. Check your state insurance department's website.
  • New York. New York uses its own rule, Regulation 187 (11 NYCRR Part 224), which applies a best interest standard to annuities and life insurance and does not follow the NAIC framework. See New York.
  • Securities rules. Variable annuities and RILAs are securities as well as insurance. The SEC's Regulation Best Interest, adopted in 2019, governs broker-dealers recommending them, and FINRA rules also apply. The NAIC model gives a safe harbor when the recommendation complies with Reg BI or with fiduciary duties of an investment adviser, though the insurer must still supervise.
  • Retirement accounts. When an annuity is recommended for an IRA rollover or a retirement plan, separate Department of Labor rules and exemptions may apply. The scope of the federal DOL fiduciary rule has been contested in court; see The DOL fiduciary rule and annuity sales: where it stands in 2026 for where it stands.

What the rule does not do

  • It does not require fiduciary duty in the full legal sense, and it does not require the cheapest product.
  • It does not usually require ongoing monitoring after the sale.
  • It does not remove surrender charges or commissions.
  • It does not prevent a bad purchase if you insist on one; the producer's duty is to document and recommend, not to refuse your order.
  • It is enforced by state insurance regulators, with penalties against licenses and sometimes remedies for consumers. Whether a consumer can sue directly depends on state law.

What to do before you sign

  1. Ask the agent in writing how they are paid on this product and on the alternatives.
  2. Request the written disclosure of role and compensation the rule requires.
  3. Ask which other products the agent could have recommended and why not those.
  4. Ask for the surrender schedule, free-withdrawal amount and total yearly costs. See annuity fees, explained.
  5. If money is coming from another annuity or life policy, ask for a side-by-side comparison. See 1035 exchanges: swapping policies without tax and the replacement rules in your state.
  6. Use the free-look period, typically 10 days or more depending on state and age, to review the contract.
  7. If you believe you were misled, file a complaint with your state insurance department and keep your documents. Read annuity sales abuses targeting seniors.

Key takeaways

  • The NAIC revised its annuity model (#275) in 2020 to require agents to act in the consumer's best interest, built on care, disclosure, conflict-of-interest and documentation obligations.
  • All 50 states have some form of best interest rule as of 2025, but versions differ and New York follows its own Regulation 187.
  • Insurers must supervise their producers, not just license them.
  • Best interest does not mean lowest cost or no commission; it means a documented, reasonable recommendation.
  • Ask about compensation and alternatives, and complain to your state regulator if you think a sale went wrong.

Terms used in this guide

Best interest standard A conduct rule requiring agents and advisers to recommend products that serve the customer's needs without putting their own pay first. Suitability The requirement that an agent recommend an annuity or other product only after gathering enough information to judge that it fits the buyer. Fiduciary A person or firm legally bound to act in someone else's best interest with loyalty and care, such as a trustee, executor or registered investment adviser. Annuity A contract with a life insurer that grows savings tax-deferred, turns them into guaranteed income, or both, in exchange for one or more payments. Surrender charge A fee deducted from a policy's or annuity's value if you cancel or withdraw too much in its early years, usually shrinking each year. Deferred annuity An annuity that grows tax-deferred for years before income begins, used to build retirement savings or lock in future lifetime payments.

Related states

New York New York life insurance rules: $500,000 guaranty protection, a 60-day replacement free look, interest from date of death, and a $7.35M estate tax exclusion.

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