Avoiding Fraudulent Life Insurance Schemes: Vanishing Premiums

Life insurance can provide an indispensable form of financial security for surviving loved ones.  This form of insurance also serves as a key part of many effective estate plans.  However, life insurance policies come in many forms and configurations.  If you are considering purchasing a policy, you should do some research to ensure that the insurance company has a solid reputation and that the policy provides the benefits you anticipate based on the terms and conditions you find acceptable.  One issue potential purchasers of life insurance should consider involves fraudulent life insurance, such as deceptive “vanishing premium” policies.

This type of life insurance policy offers tempting benefits for people seeking lifetime coverage without the need to pay insurance premiums until they die.  Estate planning professionals also frequently recommended this type of estate planning tool as part of joint life or a second-to-die policy to fund estate taxes.

These policies are marketed via sophisticated flashy sales illustrations that emphasize the “vanishing premium” benefits of these policies.  The marketing presentation focuses on the fact that the policyholder only needs to make payment for a few years.  The salespeople represent that the policy then becomes self-funding from dividend earnings and interest. 

However, these projections often are based on unrealistic projections about future earnings and interest ratings.  Consumers faithfully pay their premiums, but they eventually get a visit from an insurance company representative indicating that they have to continue making payments for many years.  The decision to purchase the policy is predicated on only paying premiums for a relatively short period of time.  When the insured is informed that the premium payments will continue indefinitely, he or she has limited options:

  • Discontinue paying and risk a policy lapse based on non-payment of premiums
  • Make premium payments for many years beyond the agreed period

Many states allow an insured to bring a cause of action against insurance companies based on misleading and deceptive insurance marketing programs.  If you or a family member has been victimized by this type of deceptive marketing practice by an insurance company, you should talk to a Florida insurance claims attorneys about your options. My law firm is committed to protecting the interests of policyholders from all forms of unethical and bad faith practices by insurance companies. 

The facts in the California case of Broberg v. Guardian Life Ins. Co. provides an example of this type of scheme.  The insurer issued a whole life policy and falsely claimed that the policy dividend and interest earnings would cover the cost of the premiums after the 11th year of the policy.  The insurer’s sales representative provided a 3 page illustrated presentation depicting the end of premiums after the 11th year.  The preprinted form contained the handwritten notations “11th year” and “vanishing premium.”

The first page of the policy contained no warnings, cautionary language or footnotes.  The second page of the policy did contain a notation “important footnotes.”  The third page had 38 single spaced lines with several qualifications.  Amongst all this text, there was a disclaimer indicating that the dividends were neither estimated or guaranteed but were instead based on the 1993 level.

If you are exposed to fraudulent insurance practices, you should seek legal advice regarding your rights or remedies.  My law firm represents policyholders in claims disputes in Miami and throughout Florida.  The Law Firm of J.P. Gonzalez-Sirgo, P.A. offers free consultations and case evaluations.  No Recovery, No Lawyer Fees.  Call 305-461-1095 or Toll Free 1-866-71-CLAIM.

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