Variable Life Insurance – Series 7 Exam
- April 1, 2025
- Posted by: 'FINRA Exam Mastery'
- Category: Finance
📝 Variable Life Insurance – Series 7 Exam Guide
📍 Posted on https://finra-exam-mastery.com
Variable life insurance is a key concept tested on the Series 7 Exam. Understanding its structure, features, risks, and regulatory treatment is essential for anyone preparing to pass the exam and become a licensed representative.
🛡️ What Is Variable Life Insurance?
Variable life insurance is a permanent life insurance policy that combines life protection with an investment component. Unlike whole life insurance, where the cash value grows at a fixed rate, the cash value in a variable policy is invested in subaccounts, similar to mutual funds.
🧠 Key Features to Know for the Exam:
- Fixed Premiums: The policyholder pays a fixed premium, but the death benefit and cash value fluctuate based on the performance of the investment subaccounts.
- Investment Risk: The policyholder bears the investment risk, which is why it’s considered a securities product and must be sold with a prospectus.
- Death Benefit Minimum: Although the death benefit can increase with investment performance, it typically has a guaranteed minimum.
- Cash Value Access: Policyholders may borrow against the cash value, but excessive borrowing can reduce the death benefit or cause the policy to lapse.
💼 Regulatory Considerations:
- Securities Product: Because of its investment component, variable life insurance is regulated by both the state insurance departments and the SEC/FINRA.
- Licensing Requirement: A registered representative must hold both a life insurance license and a securities license (Series 6 or 7) to sell variable life policies.
- Prospectus Requirement: A prospectus must be delivered before or at the time of the sale.
📊 Compare to Other Life Insurance Products:
| Feature | Variable Life | Whole Life | Term Life |
|---|---|---|---|
| Premium | Fixed | Fixed | Fixed |
| Cash Value | Varies with investments | Guaranteed growth | None |
| Investment Risk | Policyholder | Insurer | N/A |
| Market Exposure | Yes | No | No |
| Regulation | Insurance + Securities | Insurance only | Insurance only |
📝 Exam Tip:
The Series 7 often tests your ability to differentiate variable life insurance from other insurance and investment products. Focus on:
- Who bears the investment risk
- Licensing and regulation
- Disclosure and prospectus rules
- Differences from variable annuities and mutual funds
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