SEC Breaks Ground In Adopting New VL Registration Form N-6
The Securities and Exchange Commission has adopted Form N-6, the long-awaited registration form designed specifically for variable life insurance policies.
VL insurers may generally convert to the new form after June 1, 2002.
As you will see, adoption of N-6 has important implications for VL insurers, producers and consumers.
The new form uses the two-part disclosure format currently enjoyed by mutual funds and variable annuity contracts.
This format will allow insurers to shorten their prospectuses significantly–by moving financial statements and other detailed legal and financial information from the prospectus to a Statement of Additional Information. The SAI is delivered only to investors requesting it.
The shorter prospectuses should significantly reduce insurers printing and mailing costs. In addition, by permitting more concise prospectuses, Form N-6 should help producers and investors increase their overall level of understanding of VL insurance.
Furthermore, lower development and administration costs, together with potentially higher sales, may ultimately increase insurers return on investment in the VL market, and spur increased product development, too.
Even though it will facilitate use of shorter prospectuses, Form N-6 does expand the amount of disclosure required in VL prospectuses about policy fees and charges. For instance, every prospectus will now be required to include a “fee table” specifying the maximum amount of every policy charge, including charges for every available rider.
For any charge that varies depending on individual policyowner characteristics (such as age or risk rating classification), the fee table must show the minimum and maximum charge as well as the actual amount that would be paid by a “representative policyowner.”
The requirement to show charges that a hypothetical policyowner would pay represents, to some degree, an uneasy compromise between competing disclosure theories.
The SEC has historically struggled with whether to permit hypothetical information in prospectuses. Apparently, however, it has concluded that for VL, the benefit of providing investors with a way to compare fees and charges of different policies outweighs the risk that prospectus-disclosed charges may differ significantly from the actual charges a purchaser will pay.