A second aspect of the dispute concerns the change in the long-term practices of the life insurance industry. Respected observers of the insurance industry see the phenomenon of disappearing premiums as another example of mis-selling practices motivated by short-term profit motives. They are concerned that such practices could cause irreparable damage to the life insurance industry. Industry insiders admit: “What will force change is the impact of litigation on outcomes.” The pitch for the demise of premium insurance was simple and effective: “Only make a limited number of premium payments and your life insurance premiums will `disappear`. Therefore, the “dividends” bear the premium. You`ll never have to spend money on life insurance again. There, it was written “in black and white” on the computer-generated sales illustration on company letterhead. The death benefits projected on the “disappearing premium” illustrations reached figures that increased several times the initial nominal amount of insurance. What if interest rates went down? If the policy provided only half of the stated death benefit, it was still better than the whole life insurance policy the client was paying at the time. The agent will tell you that you must first invest a large amount of money in universal life insurance. The money is invested. If the company has a good year, it can pay interest, and the interest percentage could potentially be extremely high. If your interest and dividends have accrued after a few years, it`s promising that you have enough cash value to pay premiums.
As a result, premiums will “disappear.” The success of the demise of premium as a marketing tool was immediately obvious to agents and insurance companies. The aggressive marketing departments of home offices and on-site “creative” agents quickly developed several variations of the “pitch”. A disappearing premium policy may be suitable for consumers who plan to use insurance benefits as additional income in retirement. In the meantime, the policy offers tax-deferred benefits to policyholders as cash value accumulates. In some cases, an individual uses a disappearing bonus policy in conjunction with estate planning. In general, there were two types of comprehensive life insurance, regular life insurance, where premiums were payable throughout the life of the insured, and limited-term life insurance, where premiums were deducted for only a limited number of years, after which the policy was “paid” for its full face amount. The most extreme form of limited payment life insurance was single-premium life insurance. Such a policy had a high premium, was paid in full from the outset, and had a significant immediate cash and loan value.
The disappearance of premium disputes is now a “new ball game”. Several government and in-depth investigations had informed policyholders and their representatives of fraudulent sales practices in disappearing premium sales scenarios. The defenses used by companies were no longer supported by known facts in cases of disappearance of premiums: a disappearing premium policy is a form of permanent life insurance in which the policyholder can use the dividends of the policy to pay his premiums. Over time, the present value of the policy increases to the point where the dividends earned by the policy match the premium payment. At this point, the premium is supposed to disappear or disappear. Often, the wording of the disclaimer not only omitted material facts, but actually contained false statements of fact. Warnings from a number of companies included phrases such as “dividends are based on the current order of magnitude and reflect the company`s current investment experience.” If current profits were lower than the rate used to generate rapid “disappearances” on illustrations of disappearing bonus sales, this statement was an outright lie. New York Life was the first airline to use the class action lawsuit as a way to solve its problem of disappearing rewards on a “global” basis. On August 14, 1995, New York Life announced that it was settling a class action lawsuit filed by the state on behalf of all of its endangered premium customers. Universal life insurance (UL) policies, introduced in the late 1970s, revolutionized the life insurance industry.
UL policies provided for “unbundling” of savings and insurance elements only from all life insurance, providing flexibility in paying premiums and concurrent interest rates for the investment or savings aspect of policies. Universal life insurance policies were flexible premium policies with variable death benefits. Policies introduced in the late 1970s revolutionized the life insurance industry. UL policies provided for “unbundling” of savings and insurance elements only from all life insurance, providing flexibility in paying premiums and concurrent interest rates for the investment or savings aspect of policies. Universal life insurance policies were flexible premium policies with variable death benefits. Meanwhile, Hal Ferrell, a policyholder from northern Mississippi, had “circulated” from his insurer, Crown Life Insurance Company. Crown Life was a long-standing Canadian insurer that was highly competitive in the “disappearing premium” market in the 1980s. Unable to find a satisfactory explanation of why his policies had not worked as described, Ferrell filed a lawsuit in the United States District Court in Mississippi in February 1993. The lawsuits against a number of large insurers seek group status on behalf of all policyholders who have allegedly been deceived. Two such cases have been filed in Texas against Crown Life. One of them was filed on behalf of approximately 2,000 Mexican nationals who purchased loss of life compensation policies.
The other, in which the author of this document is co-counsel for the plaintiffs, is filed on behalf of the approximately 24,000 U.S. policyholders. Class action lawsuits have been filed in federal court for the Northern District of Mississippi against a total of seven (7) additional premium companies that are disappearing. As the phenomenon of declining premium sales multiplied, life insurance companies became increasingly dependent on the sale of these new and popular products. Competition between companies was intense. The marketing and product development departments of aggressive insurance companies have developed increasingly competitive variants of the disappearing premium products. More conservative companies had to follow suit if they were to compete in the new “disappearing premium” market that had conquered the industry. Hoping that interest rates would rise again, companies embarked on a “chicken” game. Each waited for the other to reduce its dividend scale first. Without telling customers, many companies illustrated prices that were no longer supported by their profits. Companies were betting that interest rates would rise again.
However, potential buyers were not informed about gambling. They had no idea that in order for their premiums to disappear as illustrated, the company would have to earn interest again at interest rates it hadn`t seen since the early 1980s.