Uniform Securities Agent State Law (Series 63) Practice Exam

Which of the following is not considered a security unless it is variable?

1. Life insurance policies

2. Real estate properties

3. Government bonds

4. Mutual funds

The correct answer is: Life insurance policies

Life insurance policies are typically not classified as securities under most circumstances. The treatment of life insurance policies depends on whether they are fixed or variable. Fixed life insurance policies, which guarantee a set payout amount upon death and do not have an investment component tied to market performance, are considered insurance products rather than securities. However, variable life insurance policies, which allow the policyholder to allocate cash value to various investment options, are classified as securities due to their investment characteristics. In contrast, real estate properties, government bonds, and mutual funds are generally considered securities or fall under securities regulations. Real estate, despite being an asset class, does not fit the definition of a security unless packaged in a way (like a REIT) that resembles a security. Government bonds are instruments of debt and are classified as securities because they represent an obligation to pay back borrowed money with interest. Mutual funds are collective investment schemes where investors pool their money to invest in a diversified portfolio, and they are explicitly defined as securities under the law. Therefore, life insurance policies stand out, as they may not be treated as securities unless they take on variable characteristics.