On November 21, 2017, ITM TwentyFirst received a South Dakota charter for an affiliated trust company, the Life Insurance Trust Company, the first trust company focused solely on life insurance trusts. On December 22, 2017 President Trump signed into law The Tax Cuts and Jobs Act with sweeping tax changes that included a doubling of the federal estate tax exemption amount to just over $11 million, lowering the number of estates affected annually by the federal estate tax from 5,000 to 1,700, less than 0.1 percent of all deaths (1). Yet, we are extremely bullish about the prospects for our affiliated company.
In February of last year, we reported on limitations placed on inforce illustrations for John Hancock Performance universal life policies. At that time, the carrier announced a “temporary” situation, saying they were unable to provide current inforce illustrations because “regulatory standards that govern illustration practices . . . prevent us from illustrating currently payable amounts based on our current non-guaranteed elements.”
Last week, the New York State Department of Financial Services proposed an amendment to state insurance regulations that would, according to its December 27th press release, “adopt a “best interest” standard for those licensed to sell life insurance and annuity products.” This new amendment “would require that the product that best reflects the customer’s interest be offered ahead of what is most profitable to the seller.”
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.
Last week we reported on on a $37.5 million settlement paid by Mass Mutual Life Insurance Company for a lawsuit that alleged the carrier “was obligated to pay additional dividends on its participating policies.” Recently, a similar lawsuit settled for a much higher sum. Penn Mutual Life Insurance Company settled a suit for $110 million that alleged that the carrier failed “to pay the full amount of annual policy dividends out of divisible surplus that are due.” The suit was initially filed in November of 2012 by a husband and wife who together owned 5 Penn Mutual participating whole life contracts, on behalf of them and “all persons similarly situated.” (1)
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.
Late last week, a Second Amended Class Action Lawsuit was filed in the United District Court, Southern District of New York in the Brach Family Foundation vs. AXA Equitable Life Insurance Company case we first wrote about on February 2, 2016.