Back in May we wrote about the need for trustees to be aware of life settlements. A life settlement can provide a TOLI trust with more value than a policy surrender. The role of a TOLI trustee dictates that all assets are maximized – including “unwanted” life insurance policies.
In November of last year we reported on a regulation floated by the New York State Department of Financial Services to “govern life insurance company practices related to increases in the premiums” of life insurance and annuity policies. The goal was to “protect New Yorkers from unjustified life insurance premium increases.”
A little over a year ago we posted a blog about a Lincoln Financial cost of insurance (COI) increase on Legend Series Universal Life policies issued between 1999 and 2007 that originated at Jefferson Pilot (Lincoln Financial purchased Jefferson Pilot in 2006). Earlier this year we reported on a class action lawsuit filed in in the Eastern District of Pennsylvania against Lincoln. Other lawsuits soon followed, and in May we reported that four suits were combined in the Pennsylvania court into a Consolidated Class Action Complaint.
After the consolidated complaint was filed, Lincoln filed a Motion to Dismiss on June 8th. The Plaintiffs’ response was filed on July 28th, and Lincoln’s reply on August 17th. On August 22nd the court held oral arguments, and on September 11th Judge Gerald J. Pappert issued a Memorandum in which the court ruled on Lincoln’s Motion to Dismiss, which he denied in part and granted in part. As you will see, he mostly denied Lincoln’s requests, and the case will move forward.
Less than two weeks ago we reported on an interesting COI increase lawsuit. In that case, DCD Partners v Transamerica Life Insurance Company, a Los Angeles church pastor who enlisted an outside investor to finance life insurance policies providing burial funds for congregants had filed suit, along with the investor, against Transamerica for a 50% COI increase in policies issued to the group. In their lawsuit, the plaintiffs alleged among other things, breach of contract in violation of California law and breach of the covenant of good faith and fair dealing.
This week our New York City office received letters from Phoenix alerting us to cost of insurance (COI) increases on Accumulator (I, II, III, and IV) and Estate Legacy Universal Life policies. Per the carrier, the cost increase was necessary because “certain anticipated experience factors are now less favorable than we anticipated when we established the cost of insurance rate schedule.” According to the letters we received, there will be a flat “overall increase to cost of insurance rates, as well as progressive increases…beginning when an insured reaches age 71 through age 85.” A Phoenix representative told us that for policies on insureds older than 85, the full increase will be implemented at once.
It is estimated that every year, seniors in the US surrender or lapse over $112 billion dollars in life insurance death benefits (1). Most of them probably have no idea of their options, but grow tired of the premium payments and walk away without maximizing the value of an asset they may have paid for over a lifetime. For the uninformed consumer, this could be just a lost opportunity, for the Trust Owned Life Insurance (TOLI) trustee, this can be a source of potential liability.
As we end 2014 I wanted to post some observations from the past year.
An interesting class action lawsuit filed in January of this year is unfolding in California. The case, Larry Grill et al v. Lincoln National Life Insurance Company, was brought against the insurance carrier for “concealing from its insureds the option of a life settlement in connection with their life insurance policies.”
Back when I was still in the life insurance brokerage world I got my first introduction to life settlements. I will never forget the first words uttered by the salesman who was presenting that day..."Think of me as a used car salesman, but instead of selling cars I am selling used life insurance policies".