What is variable life insurance, and what is the key risk that makes it different from other permanent life products?

VARIABLE LIFE INSURANCE transfers the investment risk from the insurer to the policyowner — a fundamental difference from traditional permanent life insurance where the insurer bears all investment risk. STRUCTURE: The cash value is invested in SEPARATE ACCOUNT sub-accounts that function like mutual funds (equity, bond, money market sub-accounts); the policyowner selects the allocation among sub-accounts; PERFORMANCE RISK: If investments perform well, cash value and potentially the death benefit increase; if investments perform poorly, cash value decreases; unlike whole life, there is NO guaranteed minimum cash value; the death benefit typically has a minimum floor (the face amount), but cash value can be lost if market performance is sufficiently poor; LICENSING REQUIREMENT: Because variable products involve securities (sub-accounts that function like mutual funds), agents selling variable life must hold BOTH: a state life insurance license AND a FINRA securities registration (typically Series 6 or Series 7); agents without securities registration cannot sell variable products; REGULATION: Dual-regulated — by state insurance departments (for the insurance component) and by the SEC/FINRA (for the securities component); a prospectus must be provided to applicants; VARIABLE UNIVERSAL LIFE (VUL): Combines the flexibility of universal life (flexible premiums, adjustable death benefit) with the investment sub-accounts of variable life; this is the most flexible but also most complex and risky product. SUITABILITY: Variable products are only suitable for clients who: understand investment risk; can tolerate market volatility in their cash value; are comfortable with the complexity.