Why Some Policyholders Are Suing Their Universal Life Insurers

Life insurance has long been considered a safe investment for people who want to protect their loved ones against future uncertainties.  Many policies also offer a low-risk method of saving for retirement.  However, some insurers have taken steps to raise premiums in such as way that the investment aspect of these policies has been compromised.  In doing so, these insurers have come under considerable scrutiny.

Universal Life Class Actions Allege Policy Overcharges

There are several pending class action lawsuits against universal life insurance providers based on alleged policy overcharges. Here are the basics about this type of class action.

• Universal life insurance policyholders deposit money into their policy’s cash-value account, which is tax-advantaged and interest-bearing. Insurers take regular deductions from this account to cover expenses including policy fees, the death benefit, and premiums. These deductions are often referred to as either the “cost of insurance” or the “monthly deduction rate.”
• Consumers are suing their insurers on the basis that insurance companies are allegedly imposing unfair price increases to cover rising costs of insurance or monthly deduction rates. The class actions, in general, claim that these types of insurance rate increases violate the terms of their insurance policies, are fraudulent, or are being used by insurers to recoup losses and improve profits.

Recent Universal Life Insurance Class Action News

One such class action lawsuit, filed in June of 2009 and settled in March of 2016, resulted in a $2.25 billion settlement against The Lincoln National Life Insurance Company over alleged “cost of insurance” overcharges. The insurer agreed to issue term life insurance certificates to the settlement class, which consisted of approximately 77,000 universal life policy owners across 30 states.

In February 2016, a class action lawsuit was filed against Transamerica Life Insurance Co. for raising the cost of insurance on some universal life contracts. According to an Investment News article, the plaintiffs allege the action “constitutes a breach of obligations under the policies and has led to damages against contract holders.”

The Transamerica cost increases at issue allegedly started in August of 2015 and affected universal life insurance contracts sold in the 1980s and 1990s. Many of these insurance policies contained a minimum guaranteed interest rate of 5.5 percent annually on the cash component, according to the complaint.

According to Investment News, “Plaintiffs allege Transamerica raised monthly charges by 38 percent, ‘falsely stating’ the firm’s increases were permissible under specific terms of the policies, when they were actually ‘to subsidize its cost of meeting its interest guarantee, to recoup past losses on the policies and on its investment portfolio, and to make the policies more profitable by inducing policy terminations by those policyholders who could not afford the increase,’ the complaint says.”

Insurance industry observers believe this is just the beginning of problems for universal life insurance providers and insurers. Anyone who has experienced a steep price increase in their premium for a universal life contract should consult a legal advisor.

Vinas & Deluca is working with Rivero Mestre to prosecute  cost of insurance increase cases against Principal Life Insurance Company. If you or someone you love has a policy with Principal, and has seen their cost of insurance rates increase dramatically, please give us a call.