United States
Hong KongVariable life and variable universal life
Both put cash value in separate accounts the owner directs, so the owner carries the investment risk and the seller needs a securities registration as well as a Texas license. Variable whole life keeps a fixed level premium and a guaranteed minimum death benefit. Variable universal life adds flexible premiums and drops that guarantee.
Two products, one letter apart in most stems, and the exam separates them on premium flexibility. That is the whole distinction. Everything else these two share.
What they share
- Cash value sits in separate accounts, not the insurer's general account, and the owner picks among sub-accounts.
- The owner bears the investment risk, so the cash value can fall.
- Values are not guaranteed, which is why illustrations carry more warnings than any other product on this outline.
- They are securities as well as insurance contracts, so selling them takes a securities registration on top of the Texas agent license.
That last point reaches beyond section I. It is a licensing fact, and it turns up in the licensing content and in stems about what an agent may and may not do. Holding the general lines life, accident and health license does not by itself let you sell a variable contract.
Where they part
| Variable whole life | Variable universal life | |
|---|---|---|
| Premium | Fixed, level, due on schedule | Flexible, owner chooses timing and amount |
| Minimum death benefit | Guaranteed floor at the face amount | No guaranteed floor as standard |
| Cash value | Not guaranteed, follows the sub-accounts | Not guaranteed, follows the sub-accounts |
| Lapse risk | Missing a premium starts the grace period | Account value exhausted by charges starts it |
| Also called | Variable life | VUL, flexible premium variable life |
Read the second row twice. Variable whole life keeps a guaranteed minimum death benefit even when the sub-accounts perform badly, which is the single most commonly missed fact about it. Variable universal life does not offer that as standard, and a rider is a rider rather than a feature of the base contract.
The general account and the separate account
Fixed products put premiums in the insurer's general account. The insurer invests conservatively, guarantees a rate, keeps any excess and absorbs any shortfall. Variable products put them in separate accounts, which are legally segregated and invested according to the owner's instruction. The insurer neither guarantees the return nor keeps the upside.
Follow the risk and you can answer almost any question in this family. Whose money is at stake decides who needs a securities license, why values are illustrated rather than guaranteed, and why the paperwork at the point of sale is heavier.
An agent holds a Texas general lines life, accident and health license and no other registration. A client asks for a policy whose cash value she can allocate among equity sub-accounts. What must happen?
- The agent may sell it, because the license covers all life products
- The agent may sell it if the insurer appoints her for variable business
- The agent must also hold a securities registration before soliciting the contract
- The client must sign a waiver acknowledging investment risk
How much of the paper this is
- Section
- I, types of policies (life), 15 questions
- Family
- Interest, market sensitive and adjustable, five products
- Our estimate for the family
- About 4 of the 15, ours and not published
- Reaches other sections
- Licensing rules, suitability, point-of-sale disclosure
The family estimate is ours, derived from how many sub-items the outline lists. Pearson publishes 15 for the section and nothing below it.
The opinion
Learn these two as a pair or you will learn neither. Studied alone, variable whole life reads like whole life with a wobble and variable universal life reads like universal life with a wobble, and both descriptions are close enough to feel right in the exam room. Studied together, the difference is one row of a table and it stays put. The same technique carries most of the near-synonym content on this paper, which we set out in the near-synonym trap.
The concession: the securities registration requirement is federal and state securities regulation rather than the Texas Insurance Code, and it is not something we can quote a Texas statutory section for. We hold the Insurance Code, not the securities rules, so this page describes the requirement and does not cite a section for it.
Common questions
Do you need a securities license to sell variable life in Texas?
Yes. Variable products are securities as well as insurance contracts, so a Texas general lines life, accident and health license alone is not enough. This is one of the few places on the exam where the answer sits outside the Insurance Code, and it appears in the licensing content as well as in section I.
Does variable whole life guarantee a death benefit?
It guarantees a minimum death benefit at the face amount, even if the separate accounts perform badly. Cash value is not guaranteed. Variable universal life normally guarantees neither, which is the cleanest way to separate the two products in a stem that describes poor investment returns.
What is a separate account?
A segregated account holding assets backing variable contracts, invested according to the owner's allocation among sub-accounts. It is legally distinct from the insurer's general account, which backs fixed products and where the insurer guarantees a rate and keeps any excess return.
Which is riskier for the policy owner?
Variable universal life, because it drops the guaranteed minimum death benefit and the level premium at the same time. Poor sub-account performance plus a skipped premium can exhaust the account value and lapse the policy, where variable whole life would still pay its guaranteed floor.