Study guide
3.1 Variable Annuities Overview
Series 6 Investment Company Products
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1 Introduction
About the Series 6 Exam How to Use This Course
2 Chapter 1: Regulatory Fundamentals
1.1 Securities Regulations Overview 1.2 FINRA Rules and Structure 1.3 Communications with the Public 1.4 Prospectus Requirements 1.5 Ethical Standards and Prohibited Practices
3 Chapter 2: Investment Company Products
2.1 Mutual Funds Overview 2.2 Types of Mutual Funds 2.3 Share Classes and Sales Charges 2.4 Reducing Sales Charges 2.5 Mutual Fund Taxation 2.6 Mutual Fund Operations 2.7 Unit Investment Trusts (UITs) 2.8 Exchange-Traded Funds (ETFs) 2.9 Closed-End Funds
4 Chapter 3: Variable Contracts
3.1 Variable Annuities Overview 3.2 Accumulation and Annuity Phases 3.3 Annuity Payout Options 3.4 Annuity Features and Riders 3.5 Variable Annuity Taxation 3.6 Variable Life Insurance 3.7 Variable Life Insurance Taxation 3.8 Variable Contract Suitability
5 Chapter 4: Customer Accounts
4.1 Types of Customer Accounts 4.2 Retirement Accounts 4.3 529 College Savings Plans 4.4 Customer Identification Program (CIP) 4.5 Know Your Customer (KYC) 4.6 Account Documentation and Disclosures 4.7 Special Account Situations
6 Chapter 5: Suitability & Recommendations
5.1 Suitability Obligations 5.2 Investment Objectives 5.3 Risk Tolerance and Time Horizon 5.4 Making Suitable Recommendations 5.5 Retirement Planning Recommendations 5.6 Education Planning Recommendations 5.7 Recognizing Unsuitable Recommendations
7 Chapter 6: Processing Transactions
6.1 Mutual Fund Transactions 6.2 Variable Annuity Transactions 6.3 Trade Confirmations 6.4 Account Statements 6.5 Recordkeeping Requirements 6.6 Error Resolution
3.1 Variable Annuities Overview
Key Takeaways Explain This Topic AI
Variable annuities are insurance products and securities, requiring dual licensing.
Separate account assets are invested in subaccounts and are segregated from the insurer.
The contract owner bears investment risk in a variable annuity.
Advantages include tax deferral, death benefits, and income options.
Disadvantages include higher fees, surrender charges, and ordinary income taxation.
Last updated: January 2026
Variable annuities are insurance products that also qualify as securities , requiring both an insurance license and a securities license (Series 6) to sell. They combine tax-deferred growth with the potential for higher returns through market exposure.
What Is a Variable Annuity?
A variable annuity is a contract between an investor and an insurance company where:
- The investor makes a lump-sum payment or series of payments
- The money is invested in subaccounts (similar to mutual funds)
- The contract value varies based on investment performance
- At retirement, the investor can receive payments (annuitize) or take withdrawals
Key Point: Unlike fixed annuities where the insurance company guarantees a return, variable annuities shift investment risk to the contract owner.
Contract Parties
- Party Role
- Contract Owner Purchases the annuity, controls the contract, names beneficiary
- Annuitant Person whose life determines payout duration (often same as owner)
- Beneficiary Receives death benefit if annuitant dies during accumulation phase
- Insurance Company Issues contract, provides guarantees, manages separate account
- Separate Account vs. General Account
Variable annuities use a separate account structure:
- Feature Separate Account (Variable) General Account (Fixed)
- Investments Subaccounts chosen by owner Insurance company portfolio
- Risk Bearer Contract owner Insurance company
- Returns Variable based on market Fixed/guaranteed
- SEC Regulation Yes - registered as securities No - insurance only
- Protection Segregated from company creditors Subject to company claims
Exam Tip: Separate account assets are legally segregated from the insurance company's general assets, protecting investors if the company becomes insolvent.
Subaccounts
Subaccounts within the separate account function like mutual funds:
- Money market, bond, stock, international options typically available
- Owner selects allocation among subaccounts
- Can reallocate (transfer) among subaccounts
- Each subaccount has its own investment objective and risk profile
- Dual Registration Requirement
Because variable annuities are both insurance and securities products , representatives must have:
- Securities License - Series 6 (or Series 7) through FINRA
- Insurance License - State-specific variable products license
- Firm Registration - Both as broker-dealer and with state insurance department
Why Dual Regulation? Variable annuities involve investment risk (securities regulation) AND insurance guarantees like death benefits (insurance regulation).
Variable vs. Fixed Annuities
- Feature Variable Annuity Fixed Annuity
- Returns Based on separate account performance Guaranteed minimum rate
- Investment Risk Owner bears risk Insurance company bears risk
- Inflation Protection Potential for growth May lose purchasing power
- Regulation SEC + State Insurance State Insurance only
- License Required Insurance + Securities Insurance only
- Expense Ratios Higher (M&E, subaccount fees) Lower
- Key Advantages of Variable Annuities
- Tax-Deferred Growth - No current taxes on earnings until withdrawal
- No Contribution Limits - Unlike IRAs or 401(k)s (for non-qualified)
- Death Benefit - Protects principal for beneficiaries
- Investment Choices - Multiple subaccount options
- Lifetime Income Option - Can annuitize for guaranteed payments
- Key Disadvantages of Variable Annuities
- Higher Fees - M&E charges, admin fees, subaccount expenses, rider costs
- Surrender Charges - Penalties for early withdrawal (typically 5-7 years)
- Tax Treatment - Gains taxed as ordinary income (not capital gains)
- Complexity - Many features and options to understand
- Loss of Step-Up - Heirs don't get cost basis step-up at death