Variable Policy Riders Differ, So Analyze Them Before Filing
Judith A. Hasenauer
Lets face it, the variable product business today is ultra competitive. Insurers constantly search for new ways to differentiate their products in hopes this will gain them more "shelf-space" with distributors.
Hanging riders or endorsements onto a product is one of the methods insurers use to add additional features to their products.
While these extra options make the product more appealing to distributors and consumers, the technicalities involved in adding them can be more complex than some people assume.
As we shall see, this is particularly so in the variable product domain. But before looking at that, lets review why riders are so prevalent.
The practice of using riders and endorsements is well established in the customs and laws of the life insurance industry. For decades, insurers have considered these add-ons to be useful tools that enable them to "modularize" products and also expedite the otherwise cumbersome process of filing products with state insurance regulators.
The newer segment of the insurance industry–the variable product providers–is no exception. In fact, in recent years, variable insurers have been using riders and endorsements in an ever-increasing manner. In many instances, they use variable riders and endorsements to provide additional benefits, guarantees, or other features to make the variable product more appealing.
The majority of such features are "general account" obligations of the issuing insurance company. As such, they fall into the legal classification of "insurance."
However, it is possible for insurers to use riders and endorsements that are not pure "insurance." Rather, they could be construed to be "securities."
If such features are incidental to the variable insurance product and if the prospectus contains adequate disclosure describing the features, these riders and endorsements should pose no problem for the insurer in regards to registering the product with the Securities and Exchange Commission.
