A lawsuit about NOT blending??

[DHK]

"This is the first I'm aware of blending showing up in an official legal complaint against a life insurer, and it introduces something I have long wondered about the life insurance industry and the marketplace for cash value-focused life insurance sales."

"Blending exists as a way to manipulate a policy's design and augment the cash value achievable in the policy. For those seeking out whole life insurance as a retirement option, Infinite Banking® et. al. strategy, or any other savings/wealth accumulation plan there are certainly shade of necessity for blending as a crucial component of the plan implementation. Agents who market life insurance as a savings vehicle, but fail to make use of blending have always ventured into territory that might one day be illegal, and this lawsuit might be the catalyst for that eventual discussion/reality."

"Ultimately, the blending discussion is one of simple suitability. Is it suitable to sell someone a life insurance contract that lacks the features known to enhance cash value when you the agent know cash value accumulation is the primary goal? That's a big question many have asked for years. I'm not necessarily saying that was the circumstance in this specific case, but the complaint brought it up and it could become a subject for further exploration among insurance regulators."

https://theinsuranceproblog.com/an-ugly-indexed-universal-life-insurance-lawsuit/

 

[scagnt83]

"Ultimately, the blending discussion is one of simple suitability. Is it suitable to sell someone a life insurance contract that lacks the features known to enhance cash value when you the agent know cash value accumulation is the primary goal? That's a big question many have asked for years. I'm not necessarily saying that was the circumstance in this specific case, but the complaint brought it up and it could become a subject for further exploration among insurance regulators."

https://theinsuranceproblog.com/an-ugly-indexed-universal-life-insurance-lawsuit/

Not a surprise. Ive been saying this will happen for some time. The class action suits will happen in the next 5 years. Way worse than the UL lawsuits in the 90s. Huge fall out and reckoning coming for the IUL industry in the near future.

Carriers did this to themselves, there is almost zero suitability out there when it comes to policy design and stated goals of a policy (which is on the app). The IMOs perpetuated it to a large extent. And of course plenty of agents pushed bad policy designs either knowingly or unknowingly.

I see IUL suitability becoming a lot more like annuity suitability once the fallout is over (10 years maybe). It needs to be. It takes regulators a while to catch up since most are not in the field.

Its very sad to see whats going on in the IUL industry. Like I said, way worse than the people ripped off by bad UL design in the 70s/80s.

 

[DHK]

I would actually hope (but I'm not holding my breath) that the lawsuits would focus on funding levels, not just whether a policy is "blended" or not.

Ohio National's limited pay policies were max-funded before they added these additional PUA and term riders to them. Why did Ohio National feel a need to do that? So they could "compete" with other WL carriers with the word 'custom' in their product names. Doing this cut our compensation and added more moving parts... all in the name of competition and potentially "best interest" - even though the funding would be the same.

We'll see how this all plays out of course.

 

[scagnt83]

So they are seeking class action status. And it begins...

Its no surprise Pac Life is the carrier. Most complex IUL on the market, very different than most. Needlessly complex in so many ways.

@DHK , that is why "blending" is the focus in this case. Pac IUL requires blending to max out Premiums. They limit Premium to 50% (if I remember right) on the Base Policy.

Pac wrote some big policies. This is $500k/y for 4 years. Serious effin money. They also wrote a lot of COLI IUL policies, you would think those are fully max funded, but you might be surprised.

One issue is the agent showed an initial illustration that was funded at a higher ratio... thats the illustration they originally agreed to... then the agent brought in an amended illustration and convinced them it was better. Im guessing the 2nd illustration was not blended at all? If so, they have every right to sue imo as its bait and switch. (something I have seen in the IUL space before)

So they are using the term "blending" just to be technically specific for this case. But since they are looking for class action status, im sure those papers mention funding in general or premium ratios in general.

* The agent is also named in this lawsuit. If they pulled a "bait and switch" E&O isnt going to cover this. That is an illegal act in most if not all states, not considered an error or an omission.

 

[DHK]

To be fair, I didn't read the whole thing. Once I saw the observation that it was about blending... (and I don't know about Pac Life's product at all), my "spidey sense" and "red alert" went off and wondering how attorneys would know if a policy was properly blended and for what ratios, etc.

Still scary stuff.

Of course, if the agent would've simply done right by his client and not betray them in some way, shape, or form... it would not have gotten to this level.

And we're ALL going to have to pay for it in increased compliance and scrutiny.

 

[scagnt83]

To be fair, I didn't read the whole thing. Once I saw the observation that it was about blending... (and I don't know about Pac Life's product at all), my "spidey sense" and "red alert" went off and wondering how attorneys would know if a policy was properly blended and for what ratios, etc.

Still scary stuff.

Of course, if the agent would've simply done right by his client and not betray them in some way, shape, or form... it would not have gotten to this level.

And we're ALL going to have to pay for it in increased compliance and scrutiny.

Its not too hard for a lawyer to find an agent knowledgeable enough to explain it. They even knew an underfunded policy pays 3x more in comp and lists it in the lawsuit. So they have done their homework about the policy it seems.

Imo, IUL sales need increased compliance and scrutiny. Im no fan of extra paperwork or needless requirements. But imo people are being straight up ripped off by these underfunded IULs. And imo the problem is much more widespread than many probably think. I cant tell you how many illustrations Ive reviewed for various people that were not max funded.

Ive actually met agents who tried to justify not blending WL, regardless of the clients goals, because it "didnt pay an amount worth their time". Instead of refusing the case because they couldnt fully meet the clients needs, they take the case and sell a policy that is in their best interest and not the clients. Ive even heard some IMOs justify not maxing out IUL on illustrations they send out because they "cant make any money" doing that. This issue runs a lot deeper than you think David.

Look at annuity compliance and suitability today vs. 10 years ago. Very different. And generally speaking, a much better and safer situation for consumers. It took the whole fiduciary debate and best interest rules to get that to happen. Not that I supported the full extent of those proposed regs, but the carrier making sure the agent has done their suitability homework is not a bad thing imo.