USAA Settles Class Action Lawsuit Over Cost Increase In Term Policies

Last week, our Cedar Falls, Iowa, office received notice of a class action lawsuit settlement. The settlement, stemmed from a suit filed in Alabama, Erkins v. USAA Life Insurance Co.

According to a complaint filed on October 20, 2015, (1) Moses Erkins purchased a “Level Term Life Policy” with premiums designed to remain fixed for the “Level Benefit Period.” The $250,000 policy had a 20-year level death benefit period with a $1,025 “current” premium. After the 20- year period (up on July 20, 2017), the $1,025 annual premium would purchase a decreasing amount of insurance. The $1,025 premium cost was guaranteed for the first 5 years only, after which premium costs could increase.

The policy contract listed both the current and guaranteed premium cost of coverage, but according to the complaint filed, the policies were sold by USAA with “Current Premiums set substantially less than the maximum guaranteed premium and, with the Defendant’s stated expectation that the Current Premiums were planned to remain the same for the full duration of the contracts. Otherwise, the Policies would be prohibitively expensive and could not be marketed as they were.”

According to information provided in the settlement, (2), USAA did not “increase premium rates on any of the policies … before the end of the Level Benefit Period, but a premium increase” was “planned to take effect after the Level Benefit Period.” The plaintiff argued that in order for USAA to increase the costs in the policy it could only do so based on “expectations of future changes in mortality experience, expense experience” or “investment performance change from those expectations used in the original pricing of the Policies.”

The court did not rule in favor of either USAA or the plaintiff, instead a settlement was reached. According to settlement information, USAA agreed to provide “Settlement Class Members who submit a valid and timely claim form either a two-year term certificate or a single payment of varying amounts,” depending on their category.

In addition, USAA agreed to “provide additional written notice to all In-Force Policy Owners to inform them that their premium will increase after the Level Benefit Expiration Date.” They also agreed that there would not be any “additional re-pricing of the Policies for five years after the Effective Date of the settlement.”

It is unfortunate that the court did not rule in this case to provide us with some guidance on the issue of cost increases in life insurance policies. USAA, founded to provide a wide array of services for military member and their families, has consistently garnered high ratings from many consumer groups over the years and given the relatively small amount that they had to pay out, it is understandable why they decided to settle.

  1. Moses Erlins v USAA Life Insurance Company, Circuit Court of Barbour County Alabama, 10/30/2015
  2. LevelTermPolicySettlment.com