COI Increases for Universal Life Insurance May Not Have Been Justified

A round of rate increases for holders of universal life insurance policies has consumer advocates taking a closer look at COI charges.

Universal life insurance is different from term life insurance. Under term life insurance, the benefits are fixed, and so are the costs. A universal life insurance policy, on the other hand, works more like an investment with a guaranteed interest rate.

The issuing insurance company periodically deducts an amount for cost of insurance, or COI, then credits the remaining cash value of the policy to the policyholder.

The guaranteed interest rates associated with these policies can put the issuing company in a squeeze when interest rates fall in general.

Lower interest rates across the board can make it difficult for insurance companies to maintain their own profits while still paying policyholders the rate they committed to years ago.

Some industry experts say that in 2016, several insurance companies responded to an extended period of low interest rates by raising the COI charges they assess their policyholders. The net result has been an increase in premiums for thousands of policyholders.

Adjusting factors like COI may be legitimate to account for changes in other expenses like mortality. Raising COI simply to preserve profitability, however, may be a violation of the insurance company’s duties to its policyholders.

Higher COI Charges from Lincoln Financial

Lincoln Financial dropped a heavy increase on its policyholders in October 2016. Premiums on policies went up by 100 percent, affecting around 25,000 policyholders.

Policies affected by the Lincoln Financial increase were originally issued by Jefferson Pilot Life between 1999 and 2007. These policies are known as the Legend series of Flexible Premium Adjustable Life Insurance policies, running under the names JP Legend 300, JP Legend 200 and JP Legend 100.

Depending on the specific policy terms, holders of these policies faced either higher premiums or reduced cash value. Alternatively, they could simply allow the policy to lapse.

These COI rate increases can have a disproportionate effect on older policyholders. Many of these older customers bought their universal life insurance policies decades ago, when interest rates were much higher and a universal life insurance policy seemed like a good deal.

Some of these insureds have been paying into their insurance policies for decades, only to see those policies become burdensome or outright unaffordable at a time when they’re more financially vulnerable than they used to be.

And in a market where COI increases are proliferating, finding an affordable replacement policy isn’t easy. Age and new medical conditions can make it even more difficult for a policyholder to find a replacement policy.

Given how these increased costs burden policyholders, some in the industry speculate that these increases may have been designed to spur many policyholders to let their policies lapse. Lapsed policies work to the insurer’s benefit, but at a cost to the policyholder, who stands to lose the value they spent so many years saving.

Challenging Rate Increases in Court

Some insureds have already taken on their insurance companies over these rate increases. These companies are accused of raising their rates primarily to increase dividends for their shareholders, not to cover costs of the coverage provided.

Whether the October 2016 increase by Lincoln Financial is vulnerable to the same claims is now the subject of an insurance overcharge class action investigation. Policyholders who believe they may have been adversely affected by Lincoln Financial’s rate increase may qualify to participate in 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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