What Is SEC Form N-6?

SEC Form N-6 is a form that certain trust accounts must file with the Securities and Exchange Commission (SEC). The SEC is a regulatory agency that helps to help prevent fraud and other forms of deception involving the financial markets. The SEC monitors the activities and recordkeeping of publicly-traded companies in the United States. SEC Form N-6 helps investors gain access to pertinent information about investing in a variable life insurance contract, which has an investment component within it and can fluctuate in value.

Key Takeaways

  • SEC Form N-6 is a document that must be submitted by separate accounts, which are unit investment trusts (UITs) that offer variable life insurance contracts.
  • Since variable life insurance policies have more volatility, and thus, more risk associated with them, the SEC mandates Form N-6.
  • SEC Form N-6 helps investors understand the terms, conditions, and risks associated with these policies.

Understanding SEC Form N-6

SEC Form N-6 is a document that must be submitted by separate accounts, which are unit investment trusts (UITs) that offer variable life insurance contracts. A unit investment trust is a U.S. financial company that buys or holds a group of securities, such as stocks or insurance contracts. A UIT is similar to a mutual fund since they represent a basket of investments in which investors pool their funds. A UIT makes these investments available to investors as redeemable units.

Variable Life Insurance Contracts

Variable life insurance is a permanent life insurance policy that contains a sub-account, which provides an additional investment component. The cash value of the policy is invested in the market, similar to a mutual fund. As a result, the policy's payout amounts are based on the performance of the underlying investments within the policy. In other words, variable insurance policies pay more money when the investments are performing well and pay out less money when the investments perform poorly.

Variable life insurance policies have more volatility or fluctuations in value, and thus, more risk associated with them. It’s for these reasons that the SEC mandates Form N-6 to help investors understand the terms, conditions, and risks associated with these policies.

SEC Filings

SEC Form N-6 is just one example of what is known as an SEC filing. These filings are official statements or documents, which could include things like periodic reports, registration statements, and documents involving risk disclosures. In the United States, the federal government requires these documents to be filed and accessible to potential investors in the interest of full disclosure. Investors review all of these documents as a way to evaluate the company’s track record, to assess its current financial health, and also to try and forecast the company’s stock performance in the near future.

Parts of SEC Form N-6

SEC Form N-6 consists of three main parts.

Part A

Part A of this filing, the prospectus, must contain clearly-written information about the investment that the average investor, who may not have a specialized background in finance or law, can understand. It should provide a balanced disclosure of the positive and negative aspects of variable life insurance contracts.

Other items included in Part A are as follows:

  • Overview of the contract, the investment, and costs.
  • Fee table, including ongoing fees, annual fees, and transaction charges.
  • General description of the registrant or the insurance company.
  • Premiums, which are the monthly payments required by the investor that would need to be paid to the insurance company. This will include the due dates and amounts.
  • The standard death benefit under the contract must be described, including how the benefit is calculated and for when the insurance is in effect.
  • Surrender or withdrawal policies, such as the terms and charges for early withdrawals
  • Loans that can be taken out on the policy need to be disclosed as to whether a loan is available, any limitations, and the interest rate charged.
  • Investment risks associated with the contract and any other investments.
  • Insurance company risks to the investor, which includes a disclosure that payouts for the policy are at risk if the company suffers financially.
  • Financial statements of the insurance company.
  • Conflicts of interest, which could include disclosing that investment professionals might get paid compensation for selling these policies to investors.
  • Taxes and legal proceedings.

Like other filings, this document should adhere to the guidelines in Securities Act Rule 421(d), known as the Plain English Rule, which dictates that the wording should be clear, concise, and easily understandable.

Part B

Part B contains the statement of additional information (SAI), which may be of interest to some investors. A few of the items located in Part B include:

  • Financial statements, if not listed earlier
  • Non-principal risks include any risks not included in the prospectus.
  • Services that the registrant has purchased and expenses paid to third parties for those services. Also, any service agreements that the insurance company has with other entities must be listed.
  • Premium information not disclosed in the prospectus would be listed here, such as any limitations on prepayments
  • Underwriters, which are investment firms, must be listed with their address and any affiliations with the insurance company.

Part C

Finally, Part C contains information about the company and those involved in the insurance offering. Some of the information in Part C includes the following:

  • Exhibits, which might include any contracts the insurance company has entered into and the company's certificate of incorporation. Also, the board of directors resolution, which establishes the company, would be exhibited.
  • Listing of the directors and officers with their names, business addresses, and their position at the company.
  • Indemnification, which would list any liability insurance for the company and its affiliates.
  • Signatures for the SEC filing.

Companies that meet the specific criteria must complete and file SEC Form N-6, which is a document that is required by the Investment Company Act of 1940 and the Securities Act of 1933. To satisfy SEC filing obligations, the SEC Form N-6 must be completed and submitted in electronic format on the SEC website. The SEC makes the information contained in these filings available to the public.