Series 6 Variable Annuities Quick Guide
- April 1, 2025
- Posted by: 'FINRA Exam Mastery'
- Category: Finance
🧾 Series 6 Variable Annuities Quick Guide
📘 Essential Concepts You Need to Know for the Exam
The Series 6 exam, officially the Investment Company and Variable Contracts Products Representative Exam, focuses heavily on mutual funds, insurance products, and especially variable annuities. This guide provides a concise overview of the most critical facts and rules related to variable annuities, helping you master this high-yield topic.
🎯 1. What Is a Variable Annuity?
A variable annuity is a contract between an investor and an insurance company designed to provide retirement income. Unlike fixed annuities, variable annuities offer market-based returns and therefore carry investment risk.
🧩 Key Features:
- Funded with after-tax dollars.
- Offers tax-deferred growth.
- Provides lifetime income options.
- Offers death benefits to beneficiaries.
- Investment options usually include subaccounts, similar to mutual funds.
💡 2. Fixed vs. Variable Annuities
| Feature | Fixed Annuity | Variable Annuity |
|---|---|---|
| Returns | Guaranteed rate | Based on subaccount performance |
| Risk | Insurance company bears it | Investor bears it |
| Regulation | State insurance regulators | FINRA + SEC + State Insurance |
| Registration | Not required | Requires Series 6 license |
📋 3. Regulation & Licensing
- Variable annuities are securities → Must be registered with the SEC.
- Representatives must hold a Series 6 (or Series 7) license and be insurance licensed in the state of sale.
- Prospectus delivery is required at or before the time of the sale.
📉 4. Payout Options
| Option | Key Characteristic |
|---|---|
| Life Only | Highest payment, no beneficiary after death |
| Joint and Last Survivor | Pays until both annuitants pass away |
| Life with Period Certain | Pays for life, with minimum guaranteed period |
| Unit Refund | Unpaid balance goes to beneficiary |
💰 5. Phases of a Variable Annuity
- Accumulation Phase:
- Investor purchases accumulation units.
- Account value fluctuates based on market performance.
- Annuitization Phase:
- Accumulation units are converted to annuity units.
- Payments are fixed in number of units, but the value of each unit varies.
🧠 6. Charges and Fees
- Sales Charges: Front-end, back-end (CDSC), or level.
- Mortality & Expense Risk Fees: Compensate the insurer for guarantees.
- Administrative Fees: Cover contract processing.
- Subaccount Fees: Management fees similar to mutual fund expense ratios.
🔄 7. 1035 Exchanges
- Allows tax-free transfer from one annuity to another.
- Must be like-for-like (non-qualified to non-qualified).
- Should be suitable: Must justify the switch based on benefits, costs, or features.
🚨 8. Common Suitability Considerations
- Long-term investment goals (e.g., retirement).
- Comfort with market risk.
- Need for tax deferral and/or lifetime income.
- High fees → must be clearly disclosed.
- Not appropriate for short-term goals or low-risk investors.
📌 9. Taxation Rules
- Growth is tax-deferred.
- Withdrawals are LIFO (earnings first) → taxed as ordinary income.
- Early withdrawals before age 59½ incur a 10% penalty on earnings.
🚀 10. Exam Tips for Variable Annuities (Series 6)
✔ Know the difference between fixed and variable annuities
✔ Understand tax treatment, especially LIFO and penalties
✔ Memorize annuity payout options
✔ Focus on suitability and disclosure requirements
✔ Be familiar with contract phases and unit types
🎓 Ready to master the full Series 6 exam?
Explore training tools, flashcards, and practice tests at
👉 https://finra-exam-mastery.com
Pass confidently—know your annuities inside and out!