Variable annuities and variable life insurance contracts combine traditional investment and insurance features, offer a menu of different benefits, and can charge an array of fees.
Finally, they are subject to special tax rules that could an adverse effect on certain investors.
The SEC has proposed a new rule (17 CFR §230.498A) and amendments to existing rules and forms, that collectively seek to help retail investors receive information about variable annuity and variable life insurance products in a reader-friendly format. The new rule would give issuers of variable contracts the option of sending potential purchasers only a summary prospectus with key information on the product’s features; the full statutory prospectus would be available online.
The proposed new rule would also allow the use of two summary prospectuses: an “initial summary prospectus” for new proposed purchasers, and an “updating summary prospectus” for existing investors. The “initial summary prospectus” will need to contain specific information outlined in the rule, such as an overview of the contract, providing basic information about how variable contracts work; a table with key information about contract fees and expenses, risks, applicable taxes, and conflicts of interest; and sections describing the standard death benefit, additional standard or optional benefits, and the consequences of surrender or withdrawal. The rule would also require the “initial summary prospectus” to include an appendix containing a table summarizing the different investment options offered under the contract, and to provide links to prospectuses for the underlying investments. The “updating summary prospectus” will need to include a subset of the information provided in the “initial summary prospectus;” also a brief description of any changes to the contract taking place over the prior year.
The SEC has also proposed amendments to Forms N-3, N-4, and N-6, the registration forms for variable contracts.
Finally, the SEC’s proposed amendments would additionally require issuers of variable contracts to use Inline eXtensible Business Reporting Language (Inline XBRL) format for certain disclosures in their prospectuses. Already a must for operating companies, mutual funds, and ETFs, Inline XBRL format offers a mechanism via which the public can aggregate and analyze data – one that is in keeping with the SEC’s ongoing efforts to take advantage of advanced technologies.
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SEC Proposes New Rule to Aid Purchaser of Variable Annuity and Life Insurance Contracts | Lexology