Our consumer fraud lawyers are investigating a dramatic increase in the cost of universal life insurance policies resulting from higher monthly deduction rates.
Need a Texas Cost of Life Insurance Lawyer? Collen A. Clark is a true advocate for his clients and is passionate about helping Texans that have been injured or wronged. If your universal life insurance premiums or monthly deduction went up, you should contact our lawyers immediately. You may be entitled to compensation by filing a lawsuit.
What is Universal Life Insurance?
Universal life insurance or “permanent” policies guarantee a payout whenever the policyholder dies, plus the cash value of an investment account that is often used as retirement income.
How the Cost of Life Insurance is Determined
Costs normally fluctuate over the life of the policy based on how many people are dying and other expenses. Insurers use mortality tables to estimate how much money they will need to pay for death claims every year. Companies invest the premiums, hoping they will earn enough investment income to pay every claim.
Why Are Universal Life Insurance Premiums Rising So Fast?
Long-running low interest rates are reducing the income life insurance companies are generating off long-term investments that were made in the 1980s and 1990s, when interest rates on corporate bonds were very high.
Interest rates peaked at 15% in the 1980s, which was when many insurers guaranteed generous returns — no less than 5.5% annually in the case of Transamerica Life Insurance Co., for example.
With current rates below 3%, the economic reality fell far short of what was expected. It became harder to pay out claims that were promised to policyholders. Hiking premiums is one way to deal with the shortfall.
Life Insurance is Sold, Not Bought
Hiking premiums on older policies used to be taboo because insurers feared creating mistrust among young customers. But now that universal policies make up 40% of the market and many policyholders are in their 70s and 80s, insurers feel the costs are worth the risk.
What is the problem?
Lawsuits say some insurers are maintaining profits by sharply increasing costs as a pretext to avoid paying policyholders the interest rates that were agreed upon when the policy was sold.
Transamerica Class Action Lawsuit
A class action (PDF) was filed after Transamerica Life Insurance Co. raised some policyholders’ monthly deductions from investment accounts by 38%. The increases began in August 2015 and involve policies sold in the late 1980s and 1990s — Case No. 2:16-cv-01378.
Lawyers say the only way Transamerica could justify increasing costs is if more policyholders died than what was expected. Transamerica says the double-digit increases are still below what the policies allow, according to Investment News
Banner Life Insurance Class Action Lawsuit
In April 2016, a class action (PDF) was filed against Banner Life Insurance Company for unjustified increases in the cost of insurance. The company is accused of doubling the payments required to keep the policy, especially when the insured is over 50 years old.
Were Baby Boomers Betrayed?
Lawyers say this is “tantamount to an attempt to cancel the policies and/or raid the policies of accumulated policyholder savings.” They also say policyholders were lulled into a false belief that their policies were performing well and building cash value.
How Much Are Premiums Going Up?
Depending on the insurer, the extra annual cost ranges from about $150 for people with $250,000 policies to six-figure sums for those whose coverage tops $10 million, according to the Wall Street Journal.
What Options do Policyholders Have?
Universal life insurance policyholders have few options to handle massive premium increases. All of these options have disadvantages:
- Refuse to pay the higher monthly rate: This will eventually deplete the policy’s cash value account, and the policy will expire.
- Give up the policy and take whatever cash remains: Taxes will have to be paid. Policyholders are older, in poorer health, and less likely to find an affordable replacement.
- Reduce the death benefit of the policy: The period of coverage increases, but the payout is reduced.
Need a Cost of Life Insurance Lawyer in Texas?
Collen A. Clark is a true advocate for his clients and is passionate about helping Texans that have been injured or wronged.
Collen’s amazing success in the courtroom and well known dedication to his clients has earned him the recognition of his peers as one of The Top Trial Lawyers in Texas.”
The Clark Firm has assembled a team of trial lawyers with more than 100 years experience, participation in over 600 jury trials and $260 million in verdicts and/or settlements. Please use the form below to contact our Texas cost of life insurance lawyers for a free lawsuit review.