DC Variable Products in Insurance 1

Question 1

What licenses are required to sell variable annuities in DC?

Accepted Answer

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

Answer

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

Question 2

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

Accepted Answer

The policyholder through separate account subaccounts

Answer

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

Question 3

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

Accepted Answer

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

Answer

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.

Question 4

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

Accepted Answer

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

Answer

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.

Question 5

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

Accepted Answer

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

Answer

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.

DC - District of Columbia Insurance Practice Test

DC - District of Columbia Insurance Practice Test

DC Variable Products in Insurance 1