3.6 Variable Life Insurance

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

3.6 Variable Life Insurance

Key Takeaways Explain This Topic AI

Variable life combines permanent insurance with separate account investing.

Cash value and death benefits fluctuate, with a guaranteed minimum death benefit.

VUL offers flexible premiums; scheduled-premium VL does not.

Dual licensing is required to sell variable life.

Policy loans are generally tax-free but can reduce death benefits.

Poor performance or underfunding can cause policy lapse.

Last updated: January 2026

Variable life insurance combines permanent life insurance protection with the investment characteristics of variable annuities. Like variable annuities, these policies invest in separate accounts and require both insurance and securities licenses to sell.

What Is Variable Life Insurance?

Variable life insurance is permanent life insurance where:

Cash value is invested in separate account subaccounts
Cash value and death benefit vary based on investment performance
Policy owner bears the investment risk
Minimum death benefit is typically guaranteed

Key Point: Variable life combines a death benefit with investment options, making it both an insurance product AND a security.

Types of Variable Life Insurance
Variable Life (VL) - Scheduled Premium

Feature Description
Premiums Fixed, scheduled amounts
Death Benefit Fluctuates with performance (minimum guaranteed)
Cash Value Varies based on separate account
Premium Flexibility None - must pay scheduled premium
Premiums are fixed and mandatory
If premiums aren't paid, policy may lapse
Guaranteed minimum death benefit regardless of investment performance
Variable Universal Life (VUL) - Flexible Premium

Feature Description
Premiums Flexible - pay more, less, or skip
Death Benefit Flexible - can increase or decrease
Cash Value Varies based on separate account
Premium Flexibility Highly flexible
Combines variable life with universal life flexibility
Can adjust premiums and death benefit
More popular than scheduled premium variable life
Policy can lapse if cash value depleted

VUL is the most common form of variable life insurance tested on the Series 6 exam.

How Variable Life Works
Separate Account Investment

Like variable annuities, variable life uses a separate account :

Multiple subaccount options (equity, bond, money market, etc.)
Policy owner selects allocation
Can transfer between subaccounts
Performance determines cash value growth
Cash Value

The cash value in variable life:

Builds tax-deferred
Can be borrowed against
Can be surrendered for its value
Is NOT guaranteed (can decrease with poor performance)
Death Benefit

Variable life death benefits typically have two components:

Component Description
Guaranteed Minimum Face amount that never decreases below minimum
Variable Portion Additional amount based on investment performance

Example: Policy has $500,000 guaranteed minimum death benefit. Strong investment performance increases total death benefit to $650,000. Poor performance brings it back to $500,000 minimum.

Comparison: Variable Life vs. Other Life Insurance

Feature Variable Life/VUL Whole Life Term Life
Cash Value Variable (market-based) Guaranteed growth None
Death Benefit Variable (with minimum) Guaranteed level Guaranteed level
Investment Risk Policy owner Insurance company N/A
Premium VL: Fixed / VUL: Flexible Fixed Fixed
Securities License Required Not required Not required
Duration Permanent Permanent Temporary
Policy Loans

Variable life policies allow loans against cash value:

Loan characteristics:

Borrow up to a percentage of cash value (often 90%)
Interest charged on loan balance
No credit check required
Outstanding loans reduce death benefit
If loan + interest exceeds cash value, policy may lapse

Tax Treatment: Policy loans are generally NOT taxable events (unless the policy is a MEC or lapses with outstanding loan).

Surrender Options

Policy owners can surrender variable life for:

Full surrender - Receive entire cash value (minus surrender charges and loans)
Partial surrender - Reduce death benefit, receive portion of cash value
Paid-up insurance - Use cash value to buy smaller paid-up policy
Key Advantages of Variable Life
Permanent Protection - Coverage for life (if premiums maintained)
Tax-Advantaged Growth - Cash value grows tax-deferred
Investment Potential - Opportunity for higher returns than whole life
Tax-Free Death Benefit - Generally income tax-free to beneficiaries
Living Benefits - Cash value access through loans/withdrawals
Key Disadvantages of Variable Life
Investment Risk - Cash value can decrease
Higher Costs - M&E charges, subaccount fees, policy charges
Complexity - Many moving parts to understand
Policy Lapse Risk - VUL can lapse if cash value depleted
Requires Dual Licensing - More difficult to sell
VUL Premium Flexibility

Variable Universal Life offers unique flexibility:

Option Description
Minimum Premium Just enough to keep policy in force
Target Premium Designed to build cash value over time
Maximum Premium Subject to IRS limits to avoid MEC status
Skip Premium Use existing cash value to cover costs

Warning: Underfunding a VUL can lead to policy lapse if investment performance is poor and cash value is exhausted.

Death Benefit Options (VUL)

Option Death Benefit Best For
Option A (Level) Face amount only Lower cost, maximum insurance
Option B (Increasing) Face amount + cash value Maximum benefit, higher cost
Example: $500,000 policy with $100,000 cash value
Option A death benefit = $500,000
Option B death benefit = $600,000
Dual Registration Requirement

Variable life insurance requires:

State insurance license - Variable products endorsement
Securities license - Series 6 (or Series 7)
Firm registration - Broker-dealer with insurance authority
Key Exam Points
Variable life is a security - Requires securities registration
Cash value is NOT guaranteed - Fluctuates with separate account
Death benefit has a guaranteed minimum - Won't fall below face amount
VUL has flexible premiums - Unlike scheduled premium variable life
Policy loans are generally tax-free - Unless MEC or policy lapses
Option B = Face + Cash Value - Higher death benefit, higher cost