6.4 Variable Life Insurance
Variable life insurance combines permanent life insurance protection with equity subaccounts in a separate account, transferring investment risk to the policyowner.
Key FINRA Exam Takeaways
- Provides a guaranteed minimum death benefit backed by the general account.
- Cash value is invested in the separate account; has NO minimum guarantee and fluctuates with market performance.
- Policy loans: Insurers must make at least 75% of cash value available for loans after policy has been in force for 3 years.
- Voting rights: Variable life policyowners get 1 vote per $100 of cash value (variable annuity holders get 1 vote per unit).
- Free-look period: Typically 10 to 45 days (or 10 days from receipt) to cancel with full refund of premiums paid.
Death Benefit vs. Cash Value Guarantees
The face amount (death benefit) has a guaranteed minimum floor that will never decrease below the face amount, provided premiums are paid. The cash value, however, has zero guarantee and can drop to zero during market crashes.
Knowledge Checkpoint • Section 6.4
A client owns a variable life insurance policy. Which component of the contract is guaranteed by the insurance company's general account?