Mr. Jones came to The Center for Life Insurance Disputes after his Indexed Life Insurance policy had lapsed. He had paid 5 large annual premiums, but he had also borrowed money from the policy during those 5 years. When he bought the policy his agent told him he could pay money in and borrow money out. “It’s like paying yourself”, he was told. After making several hundred thousand dollars of premium payments, Mr. Jones was in shock when he received a pre-lapse notice from the insurer that demanded several hundred thousand dollars to keep the policy from lapsing.
While it was true Mr. Jones had borrowed a lot of money from his policy it was also true that neither the agent nor the insurer properly disclosed how the loans worked and how they affected the benefits of the policy. For example, Mr. Jones was not told:
- If a policy is in the surrender-charge period (usually 10 years), the policy can have cash value but still lapse.
- You don’t need to take loans unless the cash value is greater than all premiums paid.
- Loan repayments must be designated as such, otherwise they will be premium payments.
- There is a balance between how much can be borrowed from a policy without triggering a lapse.
- Life insurance policies do not act like bank accounts.
- Loans affect the cash value and death benefit.
In our investigation we found significant evidence that critical loan facts were not disclosed to Mr. Jones and he could not have possibly understood how life insurance policy loans work. We took our evidence to the insurance company and they agreed with our findings. We were able to negotiate a return of all of the surrender charges Mr. Jones was charged. This was a return of $165,000 to Mr. Jones — with no attorneys and no legal fees.
If you have a dispute over your lapsed life insurance policy, contact us to discuss what your options are and how we can help. Consultations are free.
Lapsed life insurance policy.
