This client was the beneficiary of a variable universal life insurance policy. The policy, after seven years, lapsed just months before the insured died.
The insurer contended that because the policy surrender charge was more than the surrender value, they were correct to have lapsed the policy.
Like many people, the beneficiary was confused as to how a policy with over $30,000 of cash value could have lapsed.
Variable universal life insurance policies are complicated. They have many fees and charges that are not easily understood or identifiable because of the way they’re deducted from the policy.
One of the more complicated features is the surrender charge. We offer a detailed explanation of surrender charge below in this post, but in short, a surrender charge is an amount of money that creates a bottom redline. The policy surrender value must be more than the surrender charge or the policy will lapse.
We audited this policy, assessing 5 years of payments, charges and fees. Another challenging feature of variable life insurance is the cash value. In variable life insurance cash values fluctuate up and down each day. The values can off-set the fees and charges or they can add-to the fees and charges, every month.
What our audit determined was the insurer lapsed the policy too soon due to its calculation of the application of the surrender value vs surrender charge.
Under our audit the policy should have been in good standing for four months longer.
This meant that a claim was payable because the insured died 3 months after the policy lapsed.
The insurer gave an extremely thorough review of our audit and conclusions. Ultimately, and to their credit, they agreed with us. $850,000.00 was paid to our client from a lapsed life insurance policy.
We represent beneficiaries of life insurance policies as well as policy owners who have disputes with insurers. If you have a claim or a dispute and need professional help, call us today.