Quick Answer
Variable life insurance (VLI) has a fixed premium and a guaranteed minimum death benefit but no guaranteed minimum cash value, since cash value sits in the separate account. Variable universal life (VUL) adds flexible premiums on top of the same separate account structure. Both are securities requiring a prospectus; whole life and universal life are not.
Selling either product requires dual licensing, and the exam tests whether candidates can map each feature (premium flexibility, death benefit floor, cash value) to the correct product name rather than treating "variable life" as one undifferentiated category.
Variable Life Insurance (VLI)
- A permanent life insurance policy with a fixed premium and a separate account for the cash value component
- The policyholder selects subaccounts (similar to variable annuities) for the cash value
- Guaranteed minimum death benefit: The death benefit cannot fall below the policy's face value, even if the separate account performs poorly
- If the separate account performs well, the death benefit may increase above the face value
- The cash value fluctuates with separate account performance; there is no guaranteed minimum cash value
- Variable life insurance is a security and requires delivery of a prospectus
Exam Tip: Gotchas
- Variable life has a guaranteed MINIMUM death benefit (face value floor) but NO guaranteed minimum cash value. These two guarantees are easily confused. The cash value can decline to zero if the separate account performs poorly, but the death benefit never falls below the face value.
Variable Universal Life Insurance (VUL)
- Combines the flexible premiums of universal life with the separate account investment choices of variable life
- The policyholder can adjust premium payments (within limits) and may also adjust the death benefit
- Cash value is invested in subaccounts selected by the policyholder
- Some VUL policies include a guaranteed minimum death benefit; others allow the death benefit to decrease if cash value declines significantly
- VUL is also a security requiring prospectus delivery and both a securities and insurance license to sell
Exam Tip: Gotchas
- VUL has flexible premiums; VLI has fixed premiums. The "universal" component is what adds premium flexibility. If the question says "fixed premium variable policy," that is VLI, not VUL.
Key Differences Among Insurance Products
This comparison table summarizes the key differences among the insurance product types:
| Feature | Variable Life | Variable Universal Life | Whole Life | Universal Life |
|---|---|---|---|---|
| Premium | Fixed | Flexible | Fixed | Flexible |
| Cash value invested in | Separate account | Separate account | General account | General account |
| Investment risk borne by | Policyholder | Policyholder | Insurance company | Insurance company |
| Guaranteed minimum death benefit | Yes (face value) | Varies by policy | Yes | Yes |
| Guaranteed minimum cash value | No | No | Yes | Yes (minimum rate) |
| Security? | Yes | Yes | No | No |
| Prospectus required? | Yes | Yes | No | No |
The Dividing Line: Securities vs. Insurance Only
- Only variable life and variable universal life are securities
- Whole life and universal life (non-variable) are insurance products only
- The word "variable" = separate account = security = prospectus required
Exam Tip: Gotchas
- Whole life and universal life are NOT securities (general account only). Only policies with "variable" in the name use the separate account and require a prospectus.
- Both VLI and VUL require dual licensing: a securities license (Series 6 or 7) AND a state insurance license.
Licensing Requirements for Variable Products
To sell variable products, a representative must hold:
- A securities license (Series 6 or Series 7)
- A state insurance license
- Association with a broker-dealer
Variable Life vs. Variable Annuity - Quick Comparison
| Feature | Variable Life Insurance | Variable Annuity |
|---|---|---|
| Primary purpose | Death benefit protection + cash value growth | Tax-deferred retirement savings + income |
| Death benefit | Guaranteed minimum (face value) | Greater of account value or premiums paid |
| Cash value guarantee | None | None |
| Accumulation/annuity units | No (uses cash value) | Yes |
| AIR (Assumed Interest Rate) concept | No | Yes (during annuitization) |
| Both are securities? | Yes | Yes |
What Should You Check on Exam Day?
- Map each feature to the right product: fixed premium points to VLI, flexible premium points to VUL.
- Confirm the death benefit floor is the face value, not the cash value; cash value has no guaranteed minimum in either product.
- Require dual licensing (securities plus state insurance) and prospectus delivery for any variable product; skip both for whole life and universal life.