Buying variable life insurance is like buying an investment and life insurance all in one contract. Because of this, variable life insurance is regulated differently than other fixed life insurance policies. Variable life requires more oversight from both the insurance industry in the state where the product is sold, as well as a national regulatory agency.
State Insurance Commissioner
Your state's insurance commissioner is responsible for the regulation of all life insurance contracts. The insurance commissioner ensures that the laws of the state are being followed, and that both insurers and policyholders are treated fairly when conducting business in the state. Because variable life insurance represents a life insurance policy at its core, this contract's insurance components are regulated at the state level.
The Financial Industry Regulatory Authority (FINRA) is responsible for regulating securities firms. It represents the nation's largest self-regulating body. The FINRA is composed of member firms, which must comply with the rules laid down by the organization. These rules are made in compliance with federal securities laws. Variable life insurance uses mutual funds, which are made up of stocks and sometimes bonds. These investments are securities. Because of this, brokerage firms sell these types of products. In turn, the FINRA regulates the brokerages selling variable life insurance and thus, in a sense, regulates variable life insurance and the sale of all contracts.
The Securities and Exchange Commission (SEC) is responsible for bringing stability to the financial markets. As such, it regulates the stocks found in the mutual funds as well as the mutual funds themselves. Because of this, variable life insurance falls under the regulation of the SEC and all variable contracts must comply with SEC laws concerning the distribution of securities.
Because of the dual nature of variable life insurance, the product can only be sold by individuals who hold both a securities license and a life insurance license. These individuals are subject to both state and federal laws concerning each aspect of the product. These individuals are called "registered representatives" and must also carry additional liability insurance, called E&O insurance, which protects them in the event that they are sued under either insurance or securities laws.