Variable Products in Insurance Flashcards

What licenses are required to sell variable annuities in DC?

Answer: Both a DC life insurance producer license and a FINRA Series 6 (or equivalent) securities registration

Variable annuities are insurance-securities hybrids requiring both a DC life insurance producer license and a FINRA securities registration (Series 6 or 7).

In a variable annuity, the investment risk is borne by whom?

Answer: The policyholder through separate account subaccounts

Variable annuity values fluctuate based on the performance of the policyholder's chosen subaccounts—the policyholder bears the investment risk.

What is the primary purpose of the 'separate account' in a variable life insurance policy?

Answer: To hold and invest the policyholder's premium in market-based subaccounts, insulated from the insurer's general liabilities

The separate account holds the variable policy's invested assets, legally segregated from the insurer's general account so that other creditors cannot reach the policyholder's funds.

Under FINRA rules applicable to DC producers, what is the 'suitability' standard for variable annuity sales?

Answer: The product must be reasonably suitable based on the customer's financial situation, needs, investment objectives, and risk tolerance

FINRA's suitability rule requires producers to have a reasonable basis to believe the variable annuity is suitable for the specific customer based on their financial profile.

A DC client purchases a variable universal life (VUL) policy. Which feature distinguishes VUL from whole life insurance?

Answer: VUL allows the policyholder to allocate cash value to investment subaccounts with market-linked returns and flexible premiums

VUL combines the permanent death benefit of whole life with investment flexibility—policyholders can invest cash value in subaccounts and vary premium payments within limits.

What is a 'prospectus' and when must it be delivered in a DC variable annuity sale?

Answer: A legally required disclosure document describing the investment options, fees, and risks that must be delivered before or at the time of sale

A prospectus is an SEC-required disclosure document for variable annuities that must be delivered before or at the time of sale, detailing all material information about the product.