Variable Life Insurance Products
Variable Life Insurance Products
This domain tests variable life and variable universal life as insurance contracts whose cash value is invested in separate-account subaccounts. The exam emphasizes the split between guaranteed insurance elements and non-guaranteed investment performance, plus securities registration and disclosure.
Core rules
- Premiums are allocated to subaccounts; cash value fluctuates with investment results and is not guaranteed. A minimum guaranteed death benefit may exist, but it is not the same as a guaranteed cash value.
- Variable life is a security. The separate account is registered as an investment company under the Investment Company Act of 1940, and interests are offered under the Securities Act of 1933 by prospectus.
- Sales require a state life insurance license, appointment, FINRA registration through a broker-dealer, and usually a prospectus delivery. The representative must understand both insurance and securities features.
- Policy loans, withdrawals, and surrenders can reduce the death benefit and cash value. Investment risk is borne by the policyowner.
- Illustrations are hypothetical, not promises. Non-guaranteed elements must be labeled.
Worked example
A client buys a variable universal life policy with a $500,000 face amount and allocates premiums to an equity subaccount. The subaccount falls 20%. The cash value declines, and the policy may need more premium to keep the death benefit in force. If the policy has a guaranteed minimum death benefit, that floor may protect the beneficiary only under stated conditions; it does not protect the cash value. The representative must have delivered a prospectus and explained that the illustration is not a guarantee.
Traps
Do not say variable life cash value is guaranteed. Do not confuse the death benefit guarantee with investment protection. Do not assume an insurance license alone permits variable sales, or that a prospectus is optional.