Variable Life Insurance Part 1

Variable life insurance was first brought to the marketplace in the United States by the Equitable Life Assurance Society in 1976.

It took 4 years of development, negotiations with the Securities and Exchange Commission (SEC), and the approval of the various state insurance commissioners to bring this revolutionary product to market. It was not until 4 years later that another company, John Hancock, did the same, followed shortly thereafter by Monarch Life.

Variable life insurance was slow to develop for a number of reasons. First, the policy had to be registered under the Securities Act of 1933 as a security. Second, the agent selling it had to be registered under the Securities and Exchange Act of 1934 and had to pass the National Association of Security Dealers (NASD) Series 6 Exam to obtain a license to sell it, and so early on, there were very few agents properly licensed to sell it. Third, life insurance agents at the time were uncomfortable with securities. They were used to guarantees, perceived that whole life offered those guarantees, and therefore did not readily take to or feel comfortable with variable life.

It was in December 1976 that the SEC came out with Rule 6E-2, providing the limited exception from sections of the Investment Company Act of 1940, which gave this product life. This rule (1) requires that insurance companies provide an accounting to contract holders, (2) imposes limitations on sales charges (there are no such SEC limitations on whole life or universal life), and (3) requires that the insurers offer refunds or exchanges to variable life purchasers under certain circumstances. Policy owners also must be offered the option of returning to a whole life-type policy.