Transamerica Raising Cost of Insurance (COI) On Certain Policies Issued In 1998 and 1999

We recently received confirmation from Transamerica that they are raising cost of insurance charges on their Ultra 115 and Survivorship 115 products issued in 1998 and 1999. Increases will take effect on the policy anniversary dates beginning August 1, 2017. Although illustrations are not yet available, we have learned that the increases are expected to be 58%. Updates will be posted as they become available.

Lincoln Financial Group Raising Cost of Insurance (COI) On Another Block of Policies

In May of 2016, we reported that Lincoln Financial Group, acting as administrator and reinsurer, had raised cost of insurance (COI) rates on a block of policies issued by Aetna Life Insurance and Annuity Company (now Voya Retirement Insurance and Annuity Company.) In August of the same year, we reported that they were raising COI on a block of Legend Series Universal Life policies issued between 1999 and 2007 originally issued by Jefferson Pilot (Lincoln Financial purchased Jefferson Pilot in 2006). This January, we reported that the first class action lawsuit had been filed dealing with that increase, and in May, we reported that four lawsuits, including the first one we reported on, had been consolidated in the United States District Court Eastern District of Pennsylvania.

This week, we received communication on another round of increases from the carrier. According to a representative of Lincoln, the COI increases will affect the following policies: Legend 3000, LifeSight 30, 31 and 32, UL 101, 102, 103, 130 and 131 and Vision 20.

In correspondence received from Lincoln regarding a Vision 20 policy we manage, it was noted the increases will begin on August 4th, 2017. The increases were made after Lincoln “updated projections” of their “future costs for providing this coverage,” and after undertaking an “in-depth actuarial analysis along with a rigorous review process.”
Per a FAQ sheet provided by the carrier, the rates are based on “future expectations” of “certain cost factors, including mortality, interest, expenses and the length of time policies stay in force.” Those “cost factors have changed; therefore, policy COI rates have been adjusted to appropriately reflect those future expectations.”

Lincoln has provided several options for policyholders including: continuing to pay the current premium, though “at some point premiums may need to be increased in order to keep the policy in force,” reducing the death benefit of the policy to lower the costs, replacing the current policy with another, or surrendering the policy for the cash surrender value.

Lincoln representatives could not tell us the size of the COI increase. They have provided a number of contact options and have suggested “the best way to learn how these COI changes will impact policy performance and to make an informed decision on managing your policy is to request an inforce illustration.”

We have requested inforce illustrations, and will be analyzing the information to determine the size of the increase and the effect on the carrying costs of policies. We will report back at a later date.


Now Is the Time to Consider Outsourcing Your Irrevocable Life Insurance Trust Administration – Last in a Three Part Series

In the first two entries in this series we outlined the TOLI outsourcing model and examined the many advantages of outsourcing the administration of your TOLI trusts. In this entry, we will explore the vulnerability for most TOLI trustees – policy management. While the case to outsource can be made generally on economics alone, we have seen time and time again that trustees simply do not have the requisite skills or training to truly manage a life insurance portfolio in-house. We regularly see situations where the wrong decisions involving a policy create real liability for the trustee. There are three areas where we see this most consistently.

Changes in Policy Performance:
The last decade of market volatility and historic low interest rates has put great stress on policy performance, and the cost of insurance (COI) increases we have seen have wreaked havoc with estate plans as carrying costs on affected policies have dramatically increased. Maximizing the value of a problem policy is required of a TOLI trustee, but sometimes it takes a high level of “insurance intelligence” to do that. Case in point was a COI increase case our remediation team encountered. In that situation, a grantor subject to a 50% increase in premium costs was looking for the best alternative for his existing policy, as his health precluded the purchase of a new policy. We reviewed all policy options, including those not offered by the carrier in their communications concerning the COI increase. By reviewing the policy contract in detail, we found that the trustee could convert the universal life policy to a contractually “paid up” whole life policy. The conversion created guaranteed death benefit coverage that eliminated the COI issue. The trustee provided the grantor and the trust with a prudent decision based on the facts of the case, and the grantor was thrilled with the level of service received. When you deal with thousands of policies, your knowledge of insurance grows. Missing an opportunity to maximize the trust value in a problem policy could create a liability for the uninformed trustee.

Policy Surrenders:
Due to changes in the estate tax laws, some grantors’ perceived needs for their existing policy may change. However, a trustee still has a stated fiduciary duty to manage the asset to generate the maximum benefit for the beneficiaries. We often see trustees granting a surrender request with no analysis to determine the prudence of their decision.

When a thorough review is done, it is often found that surrendering a policy is not the best outcome. For example, we reviewed a proposed surrender of a $1.5 million universal life policy with approximately $500,000 of cash surrender value. We found that with no additional premium, lowering the death benefit by just over $300,000 would guarantee the policy to maturity with a death benefit of almost $1.2 million. Even if the policy surrender proceeds were invested at a 7% after tax rate (hard to achieve) the investment account would never surpass the death benefit value in the policy during the life of the insured. The policy death benefit was guaranteed, and the beneficiaries would receive the return tax free. As life insurance products are generally not the specialty of trustees, they typically would not know how to perform the analysis.

Policy Replacements:
Over the last few years we have seen an uptick in policy replacements that are not in the best interests of the trust. In one example, a recommended trusted insurance agent suggested to the grantor that a trustee replace three whole life policies with substantial guarantees with one new universal life policy based on assumptions that may not occur.

When reviewing a replacement, our remediation team focuses not just on the new policy, but on maximizing the benefit of the existing policy. In this case, our review showed that with no additional premium, the existing policies could have been adjusted to provide a guaranteed death benefit of $2.5M, while the new policy would have only provided $2M of coverage, which was not guaranteed. Had the replacement gone through as suggested, the trust would have lost 20% of its benefit, with potential liability to the trustee of $500,000. This type of case is a favorite of plaintiff attorneys.

I could go on, as our remediation team has documented scores of cases like these where we have averted liability to the trustee and maximized the trust benefit for the real client, the beneficiary, the person most likely to sue you, the trustee. But I think you can clearly see the problem.

Most every check written to settle a dispute around a TOLI trust is written in confidence, but many are written. Outsourcing a TOLI trust can not only make your operations more economically efficient and increase client service levels, it can also save you the embarrassment and costs associated with disputes.

It just may be time to consider outsourcing your Irrevocable Life Insurance Trusts to an expert.

Now Is the Time to Consider Outsourcing Your Irrevocable Life Insurance Trust Administration – A Three Part Series

Outsourcing is a word that has been bandied about in the business world. The term has been used interchangeably with off-shoring, the process of moving business positions and applications overseas where cheaper labor drives down costs. What I will be talking about is true outsourcing, the use of an outside US based firm to take over internal tasks. Outsourcing can lower costs, improve the customer experience, place the focus on core competencies, grow revenue, mitigate risk, and allow access to information and skillsets not held within your bank or trust company, accounting or law firm. Outsourcing the administration of your Irrevocable Life Insurance Trusts does all of this.

Although there are many reasons our clients turn to outsourcing, there is one factor almost always present when companies choose to work with us. Life insurance trusts often represent a minor revenue source for the client. This coupled with the potential liability associated with life insurance trusts makes it easy to construct a business case to allocate their human resources to other revenue generating ventures, while partnering with us to help manage their Trust Owned Life Insurance (TOLI) trusts.

In this piece, we will outline the TOLI outsourcing model. In our next post, we will review the advantages of outsourcing, economic and otherwise. In our last entry, we will describe the TOLI trustees’ Achilles heel and provide real-life examples of outsourcing limiting trustee liability.

Successful outsourcing of TOLI trusts begins with a thorough onboarding process.  Authorizations are received from the trustee to gain access to policy information. The address of record is changed to the outsourced administrator so that all carrier and trust related documents go straight to the administrators address of record (all documents are placed in a secure system with trustee access). The onboarding process follows a prescribed checklist, including a consistent proven process to ensure all pertinent information is received. During the transition period, all information around the trust and policy is inputted into the TOLI management system and double checked. Dates and contact information are calibrated so that all notices go out on time to the correct recipients. Any special administrative notes are logged, for example, outside advisers authorized to receive reports, winter addresses for grantors, etc. During this time, regularly scheduled conference calls occur between the trustee and administrator to ensure the process is on schedule and to work through any complications. Certain administrative tasks are turned over at agreed to points in time, and after 30-90 days, full administration is transferred to the outsource firm.

During the transfer of administration tasks, initial policy reviews begin. Signed authorizations received from trustee as policy owner are used to gather the necessary information for the review. During the initial review, policies are categorized based on liability to the trustee while policies in need of immediate attention are placed into a triage queue. It has been our experience that between 15 and 35 percent of all policies will need urgent attention of some sort. After initial policy reviews are completed, policies will be reviewed annually within 60 days of their anniversary date, dependent on carrier response.

Full trust administration includes, among other things, sending gift notices based on policy premium, and follow-up Crummey notifications, which when signed and returned, are stored on the TOLI system. Client contact by the outsource administrator is up to the trustee, with some trustees preferring the outsource firm to be “invisible” while others allow them to make direct contact with the grantors and beneficiaries. During the administrative process, there will be inevitable events that will need the interaction and advice of the trustee, and a skilled administrative outsource firm should have experience in dealing with these matters. The relationship between the outsource firm and trustee must be one of partnership, with both working together to increase customer service.

Policy remediation is an integral part of the outsource solution. It is rare that a trustee has the resources to build an in-house team that can manage complex life insurance products and all the unique policy related issues that arise. Annual policy reviews are just the beginning of prudent policy management. The outsource firm should be able to provide succinct reports and analyses for a trust policy, especially when changes need to be made. For example, when a premium will be missed, a policy death benefit will be reduced, or a policy surrender is being contemplated, a thorough analysis should be completed. Although the trustee still has the responsibility to make decisions regarding the policy, a skilled policy review team can provide the information needed to make sure a prudent choice is made, and can provide the follow-up documentation necessary for the trust file.

Since the trustee is not abrogating responsibility for the TOLI trusts, it is important that there is clear communication and information provided. Regularly scheduled conference calls to review any issues should be supported with comprehensive reporting that will provide risk and compliance personnel with needed documentation about trust administration and policy condition along with actions and outcomes taken on any issues.

While the information above is not all encompassing, it does provide the framework of prudent TOLI outsourcing procedures. In our next installment, we will review TOLI outsourcing advantages, as well as the IT and security requirements you should expect from your TOLI outsource administrator.

Penn Mutual Pays $110 Million Settlement in Class Action Lawsuit

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)

The suit (Harshbarger et al v. Pennsylvania Mutual Life Insurance Company) grew out of Pennsylvania law that requires mutual carriers domiciled in that state to “provide for the payment of dividends from surplus (or profits) on an annual basis,” and include in that dividend “all surplus that exceeds a maximum annual “safety fund” limit (i.e., all surplus in excess of 10% of its reserves, and not including the excess market value of its securities over their book value) (the “Safety Fund Limit”).”  (1)

The case wound its way through the United States District Court for the Eastern District of Pennsylvania and last month reached a settlement in a Stipulation of Settlement filed on the 25th of April.

Per information provided, the proposed settlement will include participating policies “in force at any time from January 1, 2006 through December 31, 2015.”  The settlement amounts were as follows:

  • For policies in force as of 12/31/2015: “A Terminal Dividend in an amount equal to 1.8% of the total Cash Surrender Value upon termination of each In Force Settlement Policy (whether by surrender or upon death of the insured).” This is expected to amount to $97 million in payouts.
  • For policies terminated “by lapse or surrender” before 12/31/2015: “A pro rata share of a $13 million Terminal Dividend.”

Penn Mutual is required to pay the benefits “automatically,” and there is no need for class members to “file a claim or take any other steps to receive the payments due to them under the Proposed Settlement.”  (2)

Penn Mutual denied “any and all wrongdoing,” considering it “desirable” to settle the case to “provide substantial benefits to Penn Mutual policyholders,” avoid “further expense and disruption of the management and operation of Penn Mutual ’s business,” and the “burdens, and uncertainties associated with a potential finding of liability and corresponding injunctive and related relief for Plaintiffs.”  (3)

Penn Mutual, like Mass Mutual, operates as a mutual company, owned by its policyholders, not outside stock holders.

  1. Harshbarger et al v. Pennsylvania Mutual Life Insurance Company Class Action Complaint filed 11/1/2012
  2. Harshbarger et al v. Pennsylvania Mutual Life Insurance Company, Document 49, Filed 04/25/17
  3. Harshbarger et al v. Pennsylvania Mutual Life Insurance Company, Document 47. Filed 04/25/17

Mass Mutual Class Action Settlement Means Small Payout for Participating Policyholders

A class action lawsuit brought against Mass Mutual Life Insurance Company has resulted in preliminary approval of a $37.5 million payout. The payout benefits policyholders of Mass Mutual participating policies held between January 1st, 2001 and December 31st, 2016. A participating policy is one that receives dividends. ITM TwentyFirst has begun to receive notices of the payout that was agreed to in a document filed March 13th of this year in United States District Court District of Massachusetts.  ITM TwentyFirst manages or reviews almost 1,000 policies from the carrier, the majority being whole life participating policies.

The settlement grew out of a case filed in 2012 against the carrier that, according to information provided by the court (1), alleges the carrier “withheld more surplus than allowed by Section 141 of Chapter 175 of the General Laws of Massachusetts.”  The suit, which was brought by a Massachusetts resident on behalf of herself and others with a similar claim, maintained that “MassMutual therefore was obligated to pay additional dividends on its participating policies in years during the Settlement Class Period.”

Mass Mutual, as its name implies, is structured as a mutual insurance company, owned by its policyholders, not outside investors.  The carrier denied any wrongdoing in this case, saying they settled the case to avoid additional expenses, disruption, and risk.

The amount of the payout “is based on annual dividends paid on each participating policy…as a pro rata share of the total amount of annual dividends MassMutual paid on all participating policies issued during the Settlement Class Period.” Therefore, the larger the dividends received by a policyholder during this time, the higher the benefit.

If you presently own a policy that is part of this settlement your benefit will be received as a paid-up addition to your policy. If your policy for some reason cannot receive paid-up additions, or if you previously owned a policy that is part of the settlement but no longer do, you will receive a check for your pro rata share.

You do have options as a policyholder.  You can exclude yourself and retain rights to pursue further claims against the carrier by notifying the court by July 3rd of this year, you can object to the settlement in writing by the July 3rd date, or you can attend a hearing scheduled for July 27th in Boston to speak out on the case. If you do nothing, the settlement amount will be paid out to you as noted above.

Attorney fees will be paid out of the settlement, but will be limited to no more than 25% of the settlement amount.

This is a preliminary settlement and if and when the court approves a final settlement, “a final order and judgement dismissing the case will be entered in the Action.”

While the $37.5 million settlement number may seem large, Mass Mutual will pay out an estimated $1.6 billion in dividends this year (2). The settlement amount will average approximately $22 per policyholder, a fraction of the dividends paid yearly on a typical well-seasoned Mass Mutual whole life policy.

For additional information, a website has been set up at  For a copy of the Agreement and the Class Notice, email

  1. Class Notice, United States District Court for the District of Massachusetts, Karen L. Bacchi v. Massachusetts Mutual Life Insurance Company
  2. Mass Mutual Press Release dated November 7, 2016

Lawsuits Consolidated Against Lincoln National For Cost of Insurance Increase

In August of 2016 we wrote about a cost of insurance (COI) increase from Lincoln National (now Lincoln Financial Group) on a block of policies originally underwritten and issued by Jefferson Pilot from 1999 to 2007.  Lincoln Financial purchased Jefferson Pilot for roughly $7.5 billion in cash and stock in a transaction that closed in 2006.

At the beginning of this year we wrote about a lawsuit filed against Lincoln for that COI increase.  Since then, additional lawsuits have been filed, and on April 19th four suits, including the one we wrote about, were combined into a Consolidated Class Action Complaint in the United States District Court Eastern District of Pennsylvania.  The combined complaint was brought on behalf of the plaintiffs and “all similarly situated owners of JP Legend 300, and JP Lifewriter Legend 100, 200, and 400 series life insurance policies.”

The lawsuit charges that Lincoln breached the policy contracts in several ways by implementing the COI increases since they were based on “prohibited factors … designed to recoup past losses, [and were] non-uniform across insureds of the same class.”

The suit indicates that Lincoln effected the increases despite providing policyholders with in force illustrations that “reflected no change in future COI rates” from 2010 to 2014 and since that time in interrogatories filed with regulators, stated it “expects mortality experience to improve.”

Lincoln, when announcing the COI increases, cited three reasons, “lower investment income,” which was attributed to the historic low interest environment, changes in their mortality tables both negative and positive, and higher expenses, “including higher reinsurance rates.”

The suit claims that Lincoln’s “future investment returns could not reasonably be lower than what Lincoln originally expected,” and that Lincoln “cannot now claim that any change in investment return justifies the increase,” since the carrier provided in force illustrations from 2010 up to 2016 that showed no COI increase that were based on “Lincoln’s then-current assumptions as to mortality, interest, and any other experience factors that underlie the COI rates.”  The suit also points out that Lincoln’s own financial information disclosed that “investment income” had grown in those years.

Per the lawsuit, Lincoln is limited by contract to increasing insurance rates based on their “expectation of future mortality, interest expenses, and lapses” and cannot raise rates “to cover for improper dividends Lincoln Life paid to Lincoln National, or miscalculations concerning past mortality assumptions, or past interest rates, expenses or lapse rates,” or to “earn future profits higher than the level projected at the time the Policies were priced.”  The suit claims that Lincoln “admits that it is relying on its ‘past’ and ‘continued’ alleged lower investment returns to justify the increase.” In letters to policyholders outlining the reasons for the increases Lincoln referenced “nearly a decade of persistently low interest rates, including recent historic lows, and volatile financial markets.”

While Lincoln cites “higher reinsurance rates” as a reason for the COI increase, the suit claims “reinsurance costs cannot provide material support for the increase, and reinsurance costs are not an enumerated permissible factor for an increase.”

The suit contains 11 Claims for Relief, including a request that the court issue an injunction against the carrier from continuing to charge the higher rates, and “ordering any policy to be reinstated that was surrendered or terminated as a result of the COI increase.”

ITM TwentyFirst manages or tracks over 25,000 life insurance policies for trustees and institutions nationwide and has reviewed over $150 billion in life insurance death benefit.  While we take no sides in COI increase court cases, we will be watching with great interest and will report back as warranted.

For a copy of the Consolidated Complaint, please contact

Special thanks to Joseph Belth for information used in this update.

1.) Lincoln National to Buy Jefferson-Pilot, Associated Press, October 1, 2005