Suitability standards for life and annuities: Not as uniform as they appear

Suitability standards for life insurance and annuities haven't stood still. Over the last decade, they've been revised, challenged in court and reinterpreted as regulators try to balance consumer protection with access to financial guidance. For organizations supporting insurance distribution across states and product types, that evolution has at times created more complexity than clarity.

Today's reality is a patchwork of suitability, best-interest and fiduciary-adjacent standards that aim to, but may not always, align. Although the rules are largely in place, supervision, interpretation and documentation continue to shift based on enforcement priorities.

How we got here

State insurance regulation has long relied on the National Association of Insurance Commissioners' (NAIC) Suitability in Annuity Transactions Model Regulation (#275), first adopted in 2003 to ensure annuity recommendations aligned with a consumer's financial needs and objectives.

That framework shifted after the Department of Labor's 2016 attempt to expand fiduciary investment advice under the Employee Retirement Income Security Act. Although the rule was vacated by the Fifth Circuit Court of Appeals in 2018, it reignited debate over whether suitability alone was sufficient.

In response, the NAIC revised Model #275 in 2020 to incorporate a best-interest standard. The updated model requires producers and insurers to act with reasonable diligence, disclose conflicts, and document recommendations. By April 2025, all 50 states had adopted a best-interest annuity sales standard, with New Jersey becoming the final state to align.

Federal oversight hasn't disappeared. The SEC's Regulation Best Interest governs variable annuities and broker-dealer activity, while the DOL continues to revisit fiduciary standards for retirement advice. In late 2025, the federal government withdrew its defense of the latest DOL fiduciary rule, reinforcing a reality insurance organizations and financial professionals know well: There is no single standard of care, only overlapping ones.

Why 'best interest' still feels unsettled

On paper, best interest sounds straightforward. In practice, interpretations still vary across regulators, industry groups and advocacy organizations.

All 50 states have adopted best-interest annuity sales standards, but consistent enforcement across jurisdictions remains elusive. New York stands apart, with DFS Regulation 187 requiring producers and insurers to ensure recommendations are made in the consumer's best interest, supported by explicit supervisory obligations.

At the same time, draft guidance from the NAIC's Annuity Suitability Working Group has made it clear that regulators expect more than passive compliance. Recent examinations have identified what regulators describe as "systematic deficiencies" in how insurers and distribution partners monitor third-party supervision, particularly in broker-dealer and hybrid environments.

In other words, responsibility doesn't transfer just because supervision does.

What regulators are signaling now

Recent guidance highlights several expectations organizations across the insurance ecosystem can’t ignore.

• Active oversight matters: Regulators are no longer satisfied with complaint-based monitoring alone. They expect evidence of ongoing review, risk analysis and engagement.
• Safe harbor isn't automatic: Although the NAIC model allows reliance on comparable standards such as Reg BI or ERISA fiduciary rules, insurers must verify those standards are met and continue to monitor compliance.
• Third-party relationships are under scrutiny: Broker-dealers, supervising entities and vendors are increasingly viewed as extensions of an insurer's overall risk profile.
• Documentation is a differentiator: Client files that clearly show how recommendations were made and reviewed and conflicts of interests were managed or mitigated are better positioned during exams.

These expectations reflect broader regulatory trends. According to NAIC data, more than 2 million individuals and more than 236,000 business entities are licensed to sell insurance in the U.S. Managing conduct consistently at that scale requires systems, not assumptions.

Where financial professionals tend to struggle

Regulatory complexity often gets the most attention, but internal execution is where many financial professionals and organizations supporting fixed insurance distribution encounter challenges. Most gaps come down to process, not intent. They tend to show up as:

• Sales processes that aren't consistently designed to support client best-interest considerations or protect the financial professional's practice.
• Documentation that exists but doesn't tell a coherent story, making it harder to demonstrate how decisions were made when scrutiny arrives.

These issues rarely signal negligence. More often, they reflect growth that has simply outpaced governance.

Where stronger oversight tends to show up in practice

Across the fixed insurance ecosystem, organizations that navigate this environment well tend to focus less on chasing regulatory perfection and more on building defensible consistency while doing right by the client. That focus often shows up through:

• Clearly defining oversight roles among insurers, agencies, and supervising entities so responsibilities don’t fall through the cracks.
• Using risk-based monitoring insights, such as trends involving replacements, early surrenders or sales to older consumers, to inform oversight efforts.
• Providing training that helps translate regulatory language into real client conversations.
• Treating documentation as narrative, not just recordkeeping.

Many insurers and distribution partners are also rethinking onboarding and due-diligence processes for new relationships. Regulators have been explicit that effective oversight starts before the first application is ever submitted.

Why suitability standards matter beyond compliance

Suitability standards aren't just a regulatory box to check. They're directly tied to trust, retention and the long-term credibility of the industry.

Demographics are part of the reason. More than 4.1 million Americans are expected to turn 65 each year through 2027, roughly 11,200 people a day. Most won't have a traditional defined-benefit pension, and many will rely on annuities and life insurance to help create income, manage risk and protect what they've built.

That reality raises the stakes. How products are recommended and supervised now shapes consumer confidence at a time when retirement decisions feel increasingly permanent.

Financial professionals who treat suitability as a starting point, instead of the finish line, are better positioned for whatever version of "best interest" comes next, without scrambling to rebuild their processes every time the rules shift.

The path forward

The regulatory landscape for life and annuities isn't getting simpler. Federal and state standards will keep evolving, and enforcement priorities will continue to shift alongside them.

Agents don't win by trying to anticipate every rule change. They win by always putting the client first, documenting their decision-making, and remaining aware of how industry rules and expectations continue to evolve.

Client interest, consistency and documentation aren't compliance formalities. They're what separate financial professionals who scramble when scrutiny arrives from those who operate with clarity, credibility and staying power.

© Entire contents copyright 2026 by InsuranceNewsNet.com Inc. All rights reserved. No part of this article may be reprinted without the expressed written consent from InsuranceNewsNet.com.

Brian Peterson is the president of accumulation and retirement income at AmeriLife. Contact him at [email protected].