Insurance Products

Insurance Products: Fixed & Variable Annuities and Life Insurance Why this matters on the exam: Insurance products appear directly in Section II (Investment Vehicle Characteristics), which carries 25% of the exam weight. The exam frequently tests the security/non-security distinction, the tax treatment of annuity distributions, and the mechanics of 1035 exchanges — getting these wrong is a common and costly mistake. --- ## Overview: The Insurance Products Landscape The Series 65 tests two broad categories of insurance products: 1. Annuities (fixed and variable) 2. Life insurance structures The central organizing question for annuities is always: *Is this product a security?* That single distinction drives registration requirements, regulatory oversight, and how investment advisers must treat these products. --- ## Annuities: Fixed vs. Variable ### Fixed Annuities A fixed annuity is a contract issued by an insurance company that guarantees a specific rate of return during the accumulation phase and a predictable income stream during the payout phase. The insurance company bears the investment risk — your client is promised a stated rate regardless of how the insurer's portfolio performs. Key characteristics: - Guaranteed minimum interest rate - Insurance company absorbs investment risk - Not a security — not registered with the SEC, not subject to securities laws - Sold by agents with an insurance license only (no Series 65 or securities registration required) ### Variable Annuities A variable annuity is a contract where the client allocates premiums into subaccounts — investment portfolios that function similarly to mutual funds. Returns are not guaranteed; they fluctuate with market performance. The client bears the investment risk. Key characteristics: - Returns tied to subaccount performance (equities, bonds, etc.) - Is a security — registered…