Sec v. United Benefit Life Ins. Co., 387 U.S. 202 (1967)

Author: U.S. Supreme Court

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Sec v. United Benefit Life Ins. Co., 387 U.S. 202 (1967)

Securities and Exchange Commission v. United Benefit Life Ins. Co.

No. 428

Argued April 10, 1967
Decided May 22, 1967
387 U.S. 202



Petitioner, the Securities and Exchange Commission (SEC), brought this action to enjoin respondent, United Benefit Life Insurance Co. (United), from offering its "Flexible Fund Annuity" contract without meeting the registration requirements of the Securities Act of 1933, and to compel United to register the "Flexible Fund" as an "investment company" pursuant to § 8 of the Investment Company Act of 1940. The "Flexible Fund" contract is a deferred, or optional, annuity plan, under which the purchaser agrees to pay a fixed monthly premium for a certain number of years. United maintains the Fund consisting of the purchasers’ premiums less expenses in a separate account invested mostly in common stocks to produce capital gains as well as interest return. The cash value of a purchaser’s interest, which is measured by and varies with the investment experience of the "Flexible Fund" account, may be withdrawn before maturity, or, at maturity (when the purchaser’s interest in the Fund ends), it may be used to purchase a conventional fixed dollar annuity. The contract also contains a provision for a guaranteed minimum cash value ranging from 50% of net premiums the first year to 100% after 10 years which is available before or at maturity. United features the program as an investment opportunity to gain through common stock investment. The SEC contended that the pre-maturity phase of the contract was separable, and constituted a "security" under the Securities Act. The Court of Appeals upheld the District Court’s conclusion that the contract should be considered in its entirety, and, thus viewed, had the character of insurance and came within the optional annuity exemption in § 3(a) of the Securities Act. Though the Court of Appeals acknowledged as controlling S.E.C. v. Variable Annuity Life Insurance Co., 359 U.S. 65 (VALIC), which held that a variable annuity contract was an investment contract and not exempt from the securities laws as insurance, it read the decision only as holding that a company, in order to qualify its products as insurance, must bear a substantial part of the investment risk associated with the contract. The court felt that test was satisfied here by the net premium guarantee and conversion to payments which included an interest element. Consequently, the question whether the "Flexible Fund" was an investment company under the Investment Company Act was not reached.


1. The operation of the "Flexible Fund" contract during the pre-maturity period during which the insurer promises to serve as an investment agency is distinctly separable from the post-maturity benefit scheme which is exempted from the Securities Act. Pp. 207-209.

2. The "Flexible Fund" contract does not come within the insurance exemption of § 3(a) of the Securities Act, since the appeal to the purchaser is not on the usual basis of stability and security, but on the prospect of "growth" through sound investment management. United’s assumption of an investment risk by its guarantee of cash value based on net premiums (a factor given undue weight by the Court of Appeals in considering VALIC) cannot, by itself, create an insurance provision under the federal definition. Pp. 209-211.

3. The accumulation provisions of the "Flexible Fund" contract constitute an investment contract under § 2 of the Securities Act under the test that the terms of the offer shape the character of the instrument under the Act, the contract here being offered to purchasers in competition with mutual funds. Pp. 211-212.

4. The question whether the "Flexible Fund" may be separated from United’s insurance activities and considered an investment company under the Investment Company Act is remanded to the Court of Appeals for further consideration. P. 212.

123 U.S.App.D.C. 305, 359 F.2d 619, reversed and remanded.


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Chicago: U.S. Supreme Court, "Syllabus," Sec v. United Benefit Life Ins. Co., 387 U.S. 202 (1967) in 387 U.S. 202 387 U.S. 203–387 U.S. 204. Original Sources, accessed September 30, 2023,

MLA: U.S. Supreme Court. "Syllabus." Sec v. United Benefit Life Ins. Co., 387 U.S. 202 (1967), in 387 U.S. 202, pp. 387 U.S. 203–387 U.S. 204. Original Sources. 30 Sep. 2023.

Harvard: U.S. Supreme Court, 'Syllabus' in Sec v. United Benefit Life Ins. Co., 387 U.S. 202 (1967). cited in 1967, 387 U.S. 202, pp.387 U.S. 203–387 U.S. 204. Original Sources, retrieved 30 September 2023, from