State RegulationsTN specificDifficulty 3/5
A consumer tells a producer that she will need access to nearly all of her savings for a home purchase within a short time. The producer nonetheless recommends an annuity whose early surrender would trigger substantial surrender charges and loss of benefits. Which conclusion is correct under Tennessee's annuity suitability rule?
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Answer & full 3-part explanation (select an option above, or peek)
Why A is correct
Tenn. Comp. R. & Regs. 0780-01-86 requires the recommendation to fit the consumer's financial situation, needs, and objectives as they are actually disclosed. A consumer who needs near-term access to her savings cannot absorb early surrender charges and lost benefits, so recommending that annuity disregards the care obligation, and the Tennessee Department of Commerce & Insurance would treat the recommendation as unsuitable.
Why the other options are wrong
- B) No product is suitable for every consumer; suitability depends on the consumer's profile, which here points away from an illiquid annuity.
- C) The producer's private speculation that plans might change cannot override the consumer's actual stated needs and objectives.
- D) Suitability is judged at the recommendation, not at signature; a signed application does not launder an unsuitable recommendation.
Memory hook
She needs the money soon; the surrender charges say no — unsuitable from the start.