VUL Agents In Business Market Face A Licensing Dilemma
Judith A. Hasenauer
During the past few years, variable universal life and variable life insurance policies have become the products of choice for most individual and business-related insurance sales.
In fact, by the end of last year, most insurers reported VUL sales had exceeded sales of traditional fixed life insurance products.
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It is likely that the VUL product has been most used in business-related insurance programs. Although such programs are often lumped together under the label “COLI” (corporate-owned life insurance), we usually think of COLI as referring only to the very large corporate insurance cases, not to the general small-business programs.
Unfortunately, whether the VUL sale is made to a giant corporation or to a “mom and pop” small business, the product will still be treated as a “security.” Hence, the salespeople involved must possess the necessary federal “licenses” before they can sell the product.
COLI cases sold to giant corporations are often done on a private placement basis. Doing so permits the sale of an unregistered policy because the sale is made to a sophisticated entity that probably does not need the same consumer protections afforded to smaller, less sophisticated entities.
However, whether it is an unregistered product sold on an unregistered basis to a giant, sophisticated corporation, or a fully registered product sold to a mom-and-pop business, the VUL is still a “security.” As such, it must be sold under the auspices of a broker-dealer that is registered with the Securities and Exchange Commission and is a member of the National Association of Securities Dealers Inc.
You might argue that this is common knowledge. After all, everyone knows that variable annuities and VL insurance are securities that must be sold by a person associated with a broker-dealer.
However, what many producers are discovering is that the licensing requirement for the sale of securities–even though the securities being sold are also life insurance products–imposes new requirements that will forever change the way life insurance agents have traditionally done business.
Once upon a time in the life insurance industry, agents were held captive to a single insurer. These agents placed all of their business with the single insurer and, in effect, sold what their insurer made available to them to sell.
As the years passed, insurers began to seek distribution outside of their own captive agency forces and the brokerage business was born in the life insurance industry. Sophisticated life insurance agents quickly found that no single insurer could supply all of the products needed to meet the needs of a sophisticated clientele, particularly when the needs for business-related insurance became more pronounced.
Fortunately, the facility existed under state insurance licensing laws for an agent to become appointed by a number of insurers. This enabled agents to seek the insurers that would develop the products that were suitable for the business and estate planning needs of their customers. Thus, very few agents today sell products of a single insurer.