The cost of insurance (COI) that universal life insurance policyholders pay each month may be based largely on expectations about mortality. So what happens when mortality expectations improve? This class action, against Lincoln National Life Insurance Company, claims that when people are living longer, COI rates should go down.
The COI Overcharge Class is all owners of universal life (including variable universal life) insurance policies issued or insured by Lincoln National Life Insurance Company, or its predecessors, that provide for an insurance or cost of insurance charge or deduction where rates or changes in rates are based on two factors, (1) mortality and (2) expenses.
The plaintiff in this case, John L. Angus, has a Flexible Premium Variable Life Insurance Policy on his parents. The complaint alleges that Angus has had to pay “inflated COI charges that are not allowed by the plaint language of” the insurance contract.
Two lines of the policy in particular are at issue here.
One, as quoted in the complaint, says, “Monthly cost of insurance rates, which are determined by us based on future expectations, include charge for mortality experience, amortized sales charges, and other administrative charges. Changes in cost of insurance rates will be based on changes in future expectations as to mortality experience and expenses.”
The complaint quotes the other as saying, “We will consider changes in the cost of insurance rates at least every five years and when cost of insurance rates for new issues change.”
Mortality rates have improved over past decades, which the complaint claims also means that Lincoln’s expectations as to future mortality experience should also have improved. If people are living longer, the complaint says, then Lincoln is able to collect more COI and to pay death benefits later than it expected.
What about the “amortized sales charges and other administrative charges”? The complaint alleges that these “are a minor component of COI rates and have not materially changed, let alone to a degree that would offset the substantial improvement of expectations as to future mortality experience…” Sales charges, the complaint alleges, are used to pay agent commissions, but the rates are fixed at the time the policy is issued.
So has Lincoln lowered the COI on policies? The complaint alleges that, on the contrary, the company “in fact has routinely increased COI rates year-over-year.”
In fact, the complaint alleges, “Lincoln and its affiliates have been [some] of the most active companies in increasing COI rates scales on other universal life (‘UL’) policies that allow for consideration of non-mortality and non-expense factors… imposing numerous COI rate hikes in the past seven years that have netted Lincoln hundreds of millions of dollars.”
The complaint likens Lincoln’s practices to a “heads I win, tails you lose” situation, where it can increase COI rates but never has to lower them.
Article Type: LawsuitTopic: Insurance
Most Recent Case Event
Lincoln National Should Lower COI Rates, Says Complaint
May 13, 2022
The cost of insurance (COI) that universal life insurance policyholders pay each month may be based largely on expectations about mortality. So what happens when mortality expectations improve? This class action, against Lincoln National Life Insurance Company, claims that when people are living longer, COI rates should go down.
Lincoln National Should Lower COI Rates, Says ComplaintCase Event History
Lincoln National Should Lower COI Rates, Says Complaint
May 13, 2022
The cost of insurance (COI) that universal life insurance policyholders pay each month may be based largely on expectations about mortality. So what happens when mortality expectations improve? This class action, against Lincoln National Life Insurance Company, claims that when people are living longer, COI rates should go down.
Lincoln National Should Lower COI Rates, Says Complaint