Connecticut Life Producer Practice exam

Which governing bodies regulate variable life insurance products?

1. Only the State Department of Insurance

2. The State Department and consumer protection organizations

3. The SEC, FINRA, and State Department of Insurance

4. Only the Federal Government

The correct answer is: The SEC, FINRA, and State Department of Insurance

Variable life insurance products are unique in that they are considered both insurance products and investment vehicles. Therefore, they are regulated by multiple entities. The correct answer signifies that the regulation involves the Securities and Exchange Commission (SEC) and the Financial Industry Regulatory Authority (FINRA), along with the State Department of Insurance, reflecting the dual nature of these products. The SEC is responsible for the regulation of securities markets and ensures the protection of investors. Since a portion of the variable life insurance premium is invested in separate accounts, which can include stocks, bonds, or mutual funds, the SEC has jurisdiction over these investment components. FINRA also plays a crucial role in overseeing the conduct of broker-dealers and ensuring transparency in the sale of variable life insurance products. They set standards for sales practices and provide guidance to protect consumers. Additionally, the State Department of Insurance regulates variable life insurance as it is still fundamentally an insurance product. This state-level regulation ensures adherence to laws that protect consumers and maintain market stability. The combination of these governing bodies creates a comprehensive regulatory framework that addresses both the insurance aspects and the investment risks associated with variable life insurance products.