Variable Contracts

Variable products mix insurance with a securities account. The Series 6 lets a representative sell them only after the person also holds the required insurance license in that state.

Variable annuities

A variable annuity has two time periods:

• Accumulation: you put money in. It sits in a separate account invested in subaccounts that look like mutual funds. The value goes up and down with the market.
• Annuity (payout): you can later turn the contract into a stream of payments. Once you annuitize, you generally cannot take the lump sum back.

The insurance company's general account backs guaranteed products (like a fixed annuity). The separate account is yours-to-the-market; it is a security.

Charges and consumer protections

• Surrender charge: a fee if you pull money out in the early years.
• Free-look period: a short window after purchase when you can cancel and get a refund under state rules.
• Death benefit: if you die during accumulation, beneficiaries often receive at least the amount you put in (contract terms vary).

Taxes and 1035 exchanges

Growth inside the annuity is tax-deferred. Withdrawals of earnings are taxed as ordinary income. A 1035 exchange lets you move from one annuity (or life policy) to another without triggering tax, if the paperwork follows IRS rules. It is not a reason to ignore surrender charges on the old contract.

Variable life insurance

Variable life and variable universal life use a separate account for the cash value. The death benefit can change with performance. These are securities plus insurance. Suitability still comes first: a person who cannot tolerate a shrinking cash value should not be in a variable policy just because a rider sounds attractive.