Vanishing Premiums

If I bought a camera down the street and when I got back to my hotel room, the shop owner called me and said, "Oh, by the way, you owe me another $100 for that camera," I would feel exactly like many of the vanishing premium victims have felt.

I understand the lawsuit. I think we could have avoided the problem through effective reillustration.

-- Christopher H. Hause

1995 - CURRENT DEVELOPMENTS SURROUNDING REGULATIONS AND STANDARDS OF LIFE AND ANNUITY PRODUCTS, - 18 p, Society of Actuaries

Robert Beck <Prudential>: Under some permanent insurance, contracts being sold today, the chances are you could stop paying after 7, 8, or 9 years and the insurance would remain in force for the rest of your life without further premium payments. (p6069)

1985 - GOV - Comprehensive Tax ReformHearings Before the Committee on Ways and Means, House of Representatives - Part 7

https://www.c-span.org/video/?125556-1/impact-tax-reform-insurance-industry

 

Society of Actuaries

1995 - SALES ILLUSTRATIONS, Society of Actuaries
1995 - CURRENT DEVELOPMENTS SURROUNDING REGULATIONS AND STANDARDS OF LIFE AND ANNUITY PRODUCTS, - 18 p, Society of Actuaries
1995 - PRACTICAL ILLUSTRATIONS AND NONFORFEITURE VALUES, Society of Actuaries - 14p
1996 - Legal Issues Affecting Nontraditional Products
1997 - VANISHING PREMIUM ILLUSTRATIONS REVISITED,  ARNOLD F. SHAPIRO

1997 LR U of Chicago The Law and Economics of Vanishing Premium Insurance - https://chicagounbound.uchicago.edu/cgi/viewcontent.cgi?article=2421&context=journal_articles

Equitable Life Insurance was accused of misleading and cheating customers. This was a situation of the so-called vanishing premium cases in the 1980s.

  • They sold policies when interest rates were high.
  • They told customers as soon as the interest rates went down their premiums would be lower. That was not true.
  • Class action lawsuits were filed in Pennsylvania and Arizona state courts, and Equitable settled the suits for $20 million helping over 130,000 people.
  • However, because the insurance company was based in another state, under this legislation, the case would have been removed to federal court and these people harmed between 1984–1996 would still be waiting for justice.

https://www.congress.gov/crec/2005/02/09/CREC-2005-02-09-senate.pdf

Legal Cases

  • 199x Prudential
  • Friedman v Manufacturer's Life
  • MANUFACTURERS LIFE INSURANCE COMPANY PREMIUM LITIGATION

1995 Prudential Class Action, 2.2 Million People, Settlement $2,200

1999 Gaidon vs Guardian, New York
https://www.law.cornell.edu/nyctap/comments/i99_0179.htm

1999 Goshen. Mutual Life Insurance of New York

2009 Kaldenbach vs Mutual of Omaha, California

Westchester Pennsylvania

  • My next comment relates to the vanishing premium "payback."
  • I guess I'd have to say I'm disappointed that companies haven't defended themselves more vigorously in this whole situation.
  • Maybe the reason is that their agents didn't do the proper job at the point of sale.
  • But if the agent did, and if the agents have a good file, and they've been following up since the point of sale/issue and have communicated properly to their clients the impact of interest rate changes on at least an annual basis, I don't think we would have this problem.
  • I found it fascinating that the agent in the Crown Life case got $40 million for mental anguish.

--  KEVIN A. MARTI

1995 - SALES ILLUSTRATIONS, Society of Actuaries

MR. SLOAN: The vanishing-premium concept has been with us since the beginning of the century.

  • I've seen illustrations of policies in companies that were formed about that time and had things that we sometimes call charter policies, and coupon policies, for example.
  • One company I know routinely sold a coupon policy, 20-pay, with the coupons cancelled, which made it a 14-pay.
    • That's a vanishing premium.
  • This was brought out, I think, in 1914, so it's not a new concept, but I'd like to point out one other real problem,
    and that's that most of these illustrations are not made up in the home office--they're produced on laptops in the field

1995 - PRACTICAL ILLUSTRATIONS AND NONFORFEITURE VALUES, Society of Actuaries - 14p