The Basics

REGULATION

Indexed Universal Life is a fixed insurance product, just as Term, Whole life, and traditional Universal Life are. Agents who desire to sell Fixed and Indexed Life products must obtain a life insurance license in the state where they are practicing. Insurance carriers, producers, and consumers go through their local state insurance department when they have questions or concerns about Fixed or Indexed Life.

Variable Life and Variable Universal Life are securities products, and thereby regulated by the Securities and Exchange Commission (SEC). Agents wanting to sell Variable products must obtain a life insurance license in the state where they are practicing, as well as pass a securities exam(s). Insurance carriers, producers, and consumers go through the SEC when they have questions or concerns about Variable Life or Variable Universal Life.

In the world of securities, including Variable Universal Life products, agents that are licensed to sell securities are regulated by the Financial Industry Regulatory Authority (FINRA). FINRA is a self-regulatory organization that oversees the financial regulatory practices of the securities industry. In a nutshell, if you are securities licensed, you must abide by the rules of FINRA as well as the SEC.

Note that there has never been an Indexed Life product that has been filed as a securities product and registered with the SEC. Indexed annuities, on the other hand, have had a handful of products that have been registered as securities. Note that today there are only three Indexed Annuity products available for sale that meet this criteria. An insurance carrier’s logic for filing an indexed product as a security, as opposed to a fixed product, is usually to accommodate a distribution that is used to selling securities products (and the prospectuses that come with them). To date, sales of registered indexed annuities have been nominal in comparison to total Indexed Annuity sales.

Both Fixed and Variable product types have tight regulation, and rules that the insurance carriers and agents must abide by. The insurance carrier’s products, advertising materials, and training brochures are diligently reviewed in both the Fixed and Variable markets. Agents are required to be properly licensed to sell both types of products. The market conduct of the independent marketing organization, broker/dealer, and agent are all carefully monitored, whether he/she is selling the Fixed or Variable variety of life insurance product.