Variable Contracts Products
What a variable contract is
A variable annuity or variable life policy is an insurance contract whose value fluctuates with a separate account. Two registrations matter: the contract is registered under the Securities Act of 1933, and the separate account is registered as an investment company under the 1940 Act. Both require prospectus delivery. The insurance company issues the contract; the broker-dealer supervises the sale.
Suitability and principal review - Rule 2330
For deferred variable annuities, the representative must make a reasonable suitability determination, and the registered principal must review and approve the transaction before it is submitted to the insurer. The representative must give the principal the necessary information within 4 business days of obtaining it, and the principal must complete the review within 7 business days of that submission. Red flags include a short intended holding period, a 1035 exchange out of a contract still in its surrender period, replacement of existing coverage, and riders the client cannot explain. Variable life sales are supervised under the general suitability and supervisory rules, with similar documentation expectations.
Traps
- Believing principal review happens after the contract is issued - it is pre-sale.
- Treating a 1035 exchange as a paperwork event rather than a sale requiring suitability analysis.
- Mixing up accumulation units (during the pay-in phase) with annuity units (used to compute payout).
- Free-look periods are set by state insurance law, not by FINRA rules.
Worked example. A 74-year-old client wants to exchange a fully paid annuity for a new contract with a seven-year surrender charge. The representative submits the file Monday. You have 7 business days to approve or reject it before it goes to the insurer; the exchange itself is a red flag requiring documented justification.