A California producer recommends a 10-year deferred fixed annuity with a 9-year surrender-charge schedule to a 78-year-old client whose only liquid assets are needed for medical expenses within the next 2 years. Under California suitability rules, the recommendation is MOST likely:
Explanation
California Insurance Code §10234.93 (and the NAIC Suitability in Annuity Transactions Model adopted in California) requires the producer to have reasonable grounds to believe a recommended annuity is suitable in light of the consumer's age, financial situation, liquidity needs, financial objectives, intended use, time horizon, and existing assets. A 9-year surrender-charge schedule on a 78-year-old whose liquidity needs arise within 2 years fails the time-horizon and liquidity prongs — the surrender charges would erode principal exactly when needed. Option A wrongly assumes tax deferral is universally beneficial. Option B — a signed acknowledgment cannot cure a structurally unsuitable sale. Option C — annuity training (8 hours) is required, but completing it does not validate an unsuitable recommendation.
Law Reference: California Insurance Code §10234.93 (annuity suitability)Practice all 315 questions free — no signup required.
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