Life Insurance Consumer Advocacy Center

Policy sustainability and transparency are necessary for consumer wellbeing.

FOR IMMEDIATE RELEASE

PLEASANT HILL, CA –The Life Insurance Consumer Advocacy Center (LICAC) is calling on life insurance companies and agents to improve communication and transparency practices regarding flexible premium policies. Current practices are damaging, taking advantage of consumers by giving them a false sense of security on policy sustainability.

Regulations require that whatever a consumer pays into a policy be referred to as a ‘premium,’ regardless of how the amount was determined or whether it will be enough to maintain the policy for the long term. Many consumers who hold these flexible premium policies are led to believe the premiums they pay will be sufficient to sustain the policy until the death of the insured. They are unaware of how flexible premiums work and are often surprised when, after paying premiums faithfully for many years, they are told by the insurance company that their policy will lapse if premiums are not increased, sometimes by large amounts. This is misleading and damaging to consumers. It erodes consumer trust in agents, companies, and the entire life insurance industry.

Unlike many policies, universal life insurance policies do not have a guaranteed, carrier-specified premium, and policy owners pay the amount listed on the policy illustration at the time of purchase. The amount is based on a snapshot taken at the time of purchase, based on the policy owner’s age, health, policy credit value, or other factors. But the amount needed to sustain the policy can change, often without consumer knowledge.

We need to improve consumer understanding of flexible premiums through better communication, transparency, and annual disclosures. Consumers should be repeatedly informed, in various contexts, that paying a flexible premium does not guarantee the policy will remain in force. From the initial purchase point to annual disclosures, consumers need to be reminded of the reality of their flexible premium policy, which is that just because you pay the insurer’s premium billing when due does not mean that the policy will stay in force. Some insurers are already implementing such strategies. For example, John Hancock offers a Life Track option for its flexible premium policies. The Life Track disclosure outlines the policyholder’s original goals and the assumptions underlying them. Each year, it gives the policyholder the option to instruct the insurer to automatically increase the premium if needed to meet the policyholder’s initial objectives

“A flexible premium life insurance policy, like most universal life policies, can offer significant benefits to consumers. However, it can also lead to false expectations among those who do not understand what a flexible premium means,” said Brian Brosnahan, Executive Director of LICAC. “LICAC is calling for changes to improve transparency and communication, so consumers are aware of what they are getting into with these policies. We need to end the all-too-common scenario where an older policyholder is shocked to find that after faithfully paying their premium for many years, the policy is about to lapse and cannot be continued without large premium increases.”

Read more on LICAC’s stance on Flexible Premiums here: https://www.lifeinsuranceconsumeradvocacycenter.org/our-issues/the-problem-with-flexible-premiums/

For more information about LICAC, please visit https://www.lifeinsuranceconsumeradvocacycenter.org/

About the Life Insurance Consumer Advocacy Center:  The Life Insurance Consumer Advocacy Center is a nonprofit social service organization that advocates for consumers of life insurance and works for the passage of laws and regulations that protect life insurance consumers.

 

CONTACT: Doug Elmets (916) 329-9180