For Policyholders, Universal Life Ins. Changes Are an Unpleasant Surprise

Holders of universal life insurance policies may be in for a tough choice as recent cost of insurance increases take effect.

Unlike term life insurance, universal life ins. has aspects of both an insurance policy and an investment product. Premiums paid to the insurance company build the policy’s cash value.

The company makes regular deductions for what’s known as cost of insurance, or COI. These deductions are meant to cover expenses like the company’s administrative costs and the effect of mortality on its ability to pay claims.

Universal life insurance policies also have a fixed, guaranteed interest rate. Because interest rates in general have been unusually low for many years, some insurance companies are struggling to make a profit from many universal life insurance policies issued decades ago during periods of higher interest.

Lincoln Financial’s COI Increase

In October 2016, Lincoln Financial Insurance announced its own round of increases, upping its cost of insurance deduction by 100 percent on policies many of which are decades old.

About 25,000 policyholders were affected by this increase. These increases specifically apply to a series of universal life ins. policies that were originally issued by Jefferson Pilot Life between 1999 and 2007. These policies are known as the “Legend Series.” They include the JP Legend 100, 200, and 300 policies.

COI Increases Lower the Value of Universal Life Ins.

This increase puts policyholders in an unenviable position. They may have a few options they can exercise, but all these options result in their getting less value out of their policy than they would have gotten without the COI increase.

Policyholders who keep their non-guaranteed policies can still get the same death benefit, but to do so they will have to increase what they pay in premiums. Guaranteed policies will suffer a significant decrease in their cash value.

Consumer advocates point out that many policyholders affected by these universal life ins. increases are not in a good position to deal with them, due in no small part to their increasing age.

Many holders of these affected policies are 70 years of age or older. They bought these policies years ago, when interest rates were higher and universal life insurance policies offered better investment value.

Now that these policyholders are older, they can be particularly vulnerable to the financial effects of these COI increases. These policyholders tend to have reduced or restricted income, so they’re unlikely to be able to afford to purchase a new policy.

Since these policyholders are in a particularly vulnerable financial position, a significant increase in the cost of their policy can make letting it lapse their only practical option. Sadly, similar increases recently issued by other universal life ins. companies have resulted in a significant number of older policyholders letting their policies lapse.

Policies allowed to lapse are a windfall for the insurance companies and a big loss for the insureds who lose them. Policyholders who lose a policy through lapse lose all the money they’ve paid into them for as long as they’ve owned the policy. Some policyholders have lost decades’ worth of premium payments.

Insurance attorneys are now investigating whether these COI increases are in violation of applicable law. Increases of COI may be justified by factors like changes in mortality rates, but raising rates simply to preserve company profits may run afoul of the law. Policyholders affected by the recent increases issued by Lincoln Financial may qualify to join this investigation free of charge.

Join a Free Universal Life Insurance Class Action Lawsuit Investigation

If you purchased a universal life insurance policy through Lincoln Financial Insurance or another insurance company, you may qualify to join a FREE class action lawsuit investigation and pursue compensation.

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