Variable Life Insurance

With a thorough understanding of variable annuities, you can now apply many of the same concepts to variable life insurance: products that combine life insurance protection with separate account investing.

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. Many exam questions test whether you confuse these two guarantees. 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 is one of the most frequently tested topics for variable contracts:

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:

1. A securities license (Series 6 or Series 7)
2. A state insurance license
3. Association with a broker-dealer

Variable Life vs. Variable Annuity - Quick Comparison