Variable Life key terms

The standard requiring a recommendation to match a customer's financial situation, objectives, risk tolerance, time horizon, and other relevant facts before a sale is made.

FINRA rule obliging firms to collect and periodically update essential facts about each customer so recommendations can be evaluated against that profile.

Permanent life coverage whose cash value is invested in separate account subaccounts chosen by the owner, so both cash value and death benefit may fluctuate with investment performance.

Flexible-premium permanent policy combining adjustable death benefit and investment-linked cash value with the ability to change premium amounts and allocations within limits.

A segregated investment pool maintained apart from the insurer's general account, holding the subaccounts that fund variable contract values and not subject to insurer creditor claims.

An individual investment portfolio within a separate account, typically mirroring a mutual fund strategy, into which a contract owner directs premiums or contributions.

The accumulated fund inside a permanent policy that belongs to the owner, may be borrowed against, and is paid on surrender after applicable charges.

The mortality and expense charge deducted periodically from a variable policy's cash value to pay for the pure death protection provided.

A recurring percentage fee deducted from separate account assets that compensates the insurer for guaranteeing mortality and expense experience under the contract.

A charge imposed by the insurer for recordkeeping, policy issuance, and ongoing servicing, often expressed as a flat amount, percentage of assets, or both.

A contingent fee deducted from cash value when a policy or annuity is surrendered during an early contract period, typically declining over time.

A state-mandated window after delivery during which the owner may cancel a newly issued policy or annuity for a full refund of premium paid.

A measure of a variable contract owner's interest in a subaccount during the payout accumulation phase, valued each business day based on portfolio performance.

The valuation measure used to determine income payments once a variable annuity is annuitized, reflecting the performance of the selected subaccounts.

An annuity contract whose value and eventual income payments vary with the investment results of separate account subaccounts selected by the contract owner.

A contract in which accumulation occurs before income payments begin, allowing tax-deferred growth during the deferral period.

The irrevocable conversion of an annuity's accumulated value into a stream of periodic income payments, usually selected from settlement options in the contract.

The disclosure document that must be delivered to a variable contract purchaser, describing investment objectives, risks, fees, and the insurer's financial condition.

Federal law requiring registration of securities offerings and delivery of a prospectus, governing the initial distribution of variable contracts.

Federal law creating the SEC and regulating secondary trading, broker-dealers, and associated persons, including ongoing reporting and antifraud obligations.

Federal statute governing the structure and operation of investment companies, including the separate accounts that fund variable life and annuity contracts.

An individual associated with a broker-dealer who is qualified to solicit and sell securities products, including variable contracts, and must hold the appropriate FINRA license.

The credential issued by a state insurance department authorizing a person to transact insurance business, required in addition to securities registration for variable products.

Periodic training mandated by state regulators to maintain an insurance license, typically covering ethics and product-specific topics within a set cycle.

A regulatory review of an insurer's or producer's sales, underwriting, and claims practices to assess compliance with consumer protection laws.

An unethical practice of inducing a policyholder to lapse or surrender coverage through misleading or incomplete comparisons, harming the consumer's interests.

Excessive or unnecessary replacement of policies or annuity contracts to generate new commissions, often leaving the client worse off after new surrender charges.

The act of surrendering, lapsing, or using values from an existing policy or annuity to purchase new coverage, triggering disclosure and comparison requirements.

A required compliance framework for financial firms that includes written procedures, a designated officer, training, and independent testing to detect suspicious activity.

A confidential filing made to federal authorities when a firm detects transactions that appear designed to evade reporting rules or otherwise indicate possible criminal activity.

A legitimate financial or emotional stake in the continued life of the insured, required at policy inception for a valid life insurance contract.

The insurer's process of evaluating risk factors such as health, age, and lifestyle to determine eligibility, premium class, and policy terms.

A limited period, generally two years, during which the insurer may rescind coverage or deny a claim for material misrepresentation on the application.

A provision barring the insurer from challenging the validity of a policy after it has been in force for a stated period, usually two years.

The time allowed after a premium due date, commonly 30 or 31 days, during which coverage remains in force before lapse.

Choices available when a permanent policy lapses with cash value, such as cash surrender, reduced paid-up insurance, or extended term insurance.

The owner's instruction naming who receives policy proceeds, which generally overrides the insured's will and can be revocable or irrevocable.

The powers held by the policy owner, including naming beneficiaries, borrowing cash value, surrendering the contract, and assigning the policy.

The amount paid to beneficiaries when the insured dies, which in variable policies may be the face amount, accumulated value, or a guaranteed minimum.

A tax-free transfer of cash value from a life insurance policy or annuity into a like-kind contract, preserving the original cost basis.

The owner's investment in a contract for tax purposes, generally premiums paid less amounts previously received tax-free, used to compute taxable gain.

The accumulation of earnings inside a life insurance or annuity contract without current income taxation, with taxes deferred until withdrawal or distribution.

A life policy that fails the seven-pay funding test, causing loans and withdrawals to be taxed like annuity distributions, potentially with a penalty before age 59½.