Life Insurance COI Increases Could Leave Insureds in the Lurch

Lincoln Financial Group has announced life insurance COI increases that could result in increased premiums or reduced benefits for certain policyholders.

The company announced the increases last year in the middle of a recent trend of life insurance COI increases. Faced with lower profits connected to a long period of low interest rates, insurance companies like Lincoln Financial have been increasing the amount they deduct from universal life insurance policies for cost of insurance, or COI.

These COI deductions are a normal provision associated with universal life policies. They are intended to account for the expenses associated with running the company, the interest earned on invested premiums and mortality – a projection of how much money the company will have to pay for death claims within a given time period.

Increases in COI can translate to higher premiums or reduced benefits for policyholders. Those who wish to cash out their policies may have to settle for a cash value well below what they were expecting to receive.

Many of the policyholders affected by Lincoln Financial’s COI increases are retirees with fixed incomes who are not in a good financial position to find an affordable replacement policy.

Life Insurance: Term vs. Universal

These life insurance COI increases are tied to a type of life insurance policy known as universal life insurance. This type of life insurance can be distinguished from term life insurance, which offers a fixed benefit in exchanged for a fixed premium.

Universal life insurance functions both as life insurance and as an investment. The policyholder builds equity in the policy by paying into it via premiums. The insurer credits the policy’s cash value to the policyholder – after making deductions for COI.

Affected Policies

The increases announced by Lincoln Financial will result in a 100 percent increase in COI for about 25,000 policyholders.

The increases apply to a set of flexible premium adjustment policies known as Legend Series universal life policies. These policies were issued between 1999 and 2007 by Jefferson Pilot Life, a company that Lincoln Financial purchased in 2006. Specific policies affected by the COI increase include JP Legend 100, JP Legend 200 and JP Legend 300.

Reasons for Life Insurance COI Increases

In announcing these life insurance COI increases, Lincoln financial cited market volatility, a changing regulatory landscape, and persistently low interest rates as the reasons behind the change.

Lower interest rates make universal life insurance policies less profitable for their carriers. Decades ago, when interest rates were significantly higher, universal life insurance policies were more popular.

Today, however, interest rates have been consistently low for around a decade, and they’re expected to remain low for the foreseeable future. That means holders of universal life insurance policies could be the target of more COI increases over the next few years.

Other companies are already facing insurance class action lawsuits over similar COI increases. Plaintiffs in these actions argue the increase in COI has nothing to do with company expenses, earned interest or mortality but instead is solely intended to increase the company’s profits.

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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