Suing Your Life Insurer

Transamerica Life Insurance Co. has been sued for raising the cost of insurance on some universal life insurance contracts, an action plaintiffs allege constitutes a breach of obligations under the policies and has led to damages against contract holders. The class-action suit, Feller et al v. Transamerica Life Insurance Co., comes as insurance companies have struggled under the burden created by persistently low interest rates, which make it more difficult for insurers to pay out claims on contracts with generous provisions inked during times of higher rates.

Last year, AXA Equitable Life Insurance Co. and Voya Financial also upped costs on some in-force universal life insurance,  which is a type of cash-value life insurance. “There have been a steady number of these [cost of insurance] lawsuits over the past seven or eight years, with mixed results.

Plaintiffs allege Transamerica raised monthly charges by 38%, “falsely stating” the firm's increases were permissible under specific terms of the policies, when they were actually “to subsidize its cost of meeting its interest guarantee, to recoup past losses on the policies and on its investment portfolio, and to make the policies more profitable by inducing policy terminations by those policyholders who could not afford the increase,” the complaint says.

Increasing the cost of insurance could lead policies to lapse more quickly than investors expect, if a policy's cash value deteriorates to the point where it can no longer fund the contract.