Equity-indexed annuities are insurance policies that grow funds on a tax-deferred basis, which means no taxes are paid on the growth of funds within the policy until money is withdrawn. You can sell an equity-indexed annuity with an insurance license, provided your client is funding it from a source you're allowed to work with, such as cash, a fixed annuity or cash value in a life insurance policy.
If your client want to purchase an equity-indexed annuity with stocks, bonds or mutual funds, you must be registered with a Series 6, 7 or 63, as appropriate, in order to liquidate the funds and transfer them into an equity-indexed annuity.
What Are the Licensing Limitations?
You must have a Series 6 through the Financial Industry Regulatory Authority (FINRA) to sell variable annuities or mutual funds. A Series 7 registration adds the ability to sell stocks and bonds, and a Series 63 adds commodities and any other security-related product. An equity-indexed annuity isn't a variable product, so none of those licenses are required to sell it, per se. Having a Series license will enable you to discuss a wider variety of investment topics with your clients.
If you only have an insurance license, though, you're not allowed to speak to clients about stocks, bonds or mutual bonds they currently own. State insurance departments require insurance companies to review annuity applications for suitability, including the source of funds used to purchase the annuity. If you're uncertain about whether you should complete a sale, consult your manager or home office for guidance.
How to Obtain an Insurance License
If you don't currently have a life insurance license, that's the first step toward being able to sell an equity-indexed annuity funded by cash, a fixed annuity or cash value from life insurance. Insurance agents are licensed on a state by state basis, and requirements vary. In general, you attend classes to prepare you for your licensing exam, then you take the exam. You are only required to have a life-only license to sell life insurance or annuities, but you may need health and disability licensing plus training if you plan to sell long-term care riders on those policies.
The exam covers insurance laws in your state and the type of insurance you're applying to sell. Once you pass the exam, you can apply for a license. There are fees for the classes, exam and the license itself. The National Insurance Producer Registry can provide guidelines for obtaining an insurance "producer" license in your state. Ethics are a huge part of the license exam, especially in terms of specific populations (such as senior citizens or military service members), anti-money laundering and codes of conduct.
How to Obtain the Series Licenses
Series 6, 7 and 63 are all securities licenses. Each series license requires passing an extensive exam, and you must be sponsored by a financial services company to take any of the exams.
According to FINRA, the Series 6 license exam takes up to one hour and 30 minutes, the Series 7 can take up to three hours and 45 minutes, while the Series 63 is one hour and 15 minutes. There is no official pre-test coursework for series licenses; your sponsoring institution may have educational requirements, however.
Selling Equity-Indexed Annuities Without Licensing
If you meet a client that may be suited for an equity-indexed annuity, but you're not licensed to work with their funds, consider partnering with an agent with the proper licenses. She can complete the sale and split the annuity commission with you, and the annuity sale will hold up under scrutiny, provided it's otherwise suitable for the client. If you don't know an agent with the proper licenses, ask your manager or home office for guidance.
Melinda Hill Sineriz has been writing professionally for over 10 years. She worked as an editorial assistant for Forward Movement Publications in Cincinnati, Ohio. She wrote for several years for allmusic.com and edited and wrote a chapter for a book with Wooster Press. She graduated from Miami University in Ohio with a Bachelor of Arts in English. She has a master's degree in teaching.