TAG | resale of universal life insurance
The following are some of the deceptive practices involving insurance sales:
*The definition of “twisting” insurance is when the insurance agent, for the purposes of generating his or her commission, persuades the client to lapse, surrender, or otherwise terminate an insurance product and replace it with another product that provides little or no economic benefit to the client. Often, the accumulated cash value of an older policy is used to mask the true cost of the new policy, allowing the agent to provide a favorable (but misleading) comparison.
*”Churning,” sometimes referred to also as twisting in the insurance industry, is an attempt by an unscrupulous agent from an insurance company to cancel your existing policy and replace it with a new one, drawing down your cash value (called “juice” in industry jargon) to pay for it. This activity generates additional commission for the agent and may result in your having to pay more down the line.
*”Vanishing premiums” refers to the inflated claims about the length of time a policyholder will need to pay premiums, such as “you only have to pay premiums for seven years, and then the policy will pay for itself.” Unfortunately, many consumers who were sold vanishing premium policies in the 1980s and 1990s later found they needed to pay more premium dollars to keep their policies from lapsing.
Before it was made illegal, some insurance agents used a sales pitch for universal life insurance that suggested the premiums could vanish.
The pitch went like this:
You start out by putting a large, lump sum into the universal life policy. The policy has the potential for making money, much like an investment (but it is illegal for an agent to sell life insurance by calling it an investment). The company may pay interest, if the company has a good year. If the company does have a good year, the percentage of interest could be very high. If you left the interest and dividends in your policy to build up with your cash value after a few years, you could have enough cash value in the policy to pay the premiums.
The “vanishing premiums” scenario depended on three big “IFs:”
Only if the company has very good years. Only if the company pays high dividends. Only if you do not withdraw cash value.
*The term “sliding” means an agent slips you extra coverage you didn’t ask for — but do pay for. This can easily add $100, $200 or more to your premium. The agent says it’s part of a “package,” or won’t mention the coverage at all. The motor club memberships, accidental death coverages and guaranteed renewable life insurance are three policies that agents sometimes sell to policyholders without their knowlege.
The primary motive in these scenerios is financial profit. These practices not only are misleading and unethical, but can be illegal.
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- Viatical Settlements;
- Life Settlements; and
- Stranger Originated Life Insurance or (“STOLI”) transactions.
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Representing Insurance Fraud Victims in Federal Court, State Court and before the Financial Industry Regulatory Authority (“FINRA”).
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Insurance Fraud Alert-
Stranger Originated Life Insurance or STOLI.
Brokers and financial advisors promising big profits on resale of universal life policies.
Many stockbrokers and financial advisors are having their clients purchase large universal life insurance policies with the promise of a big profit on resale after the two year contestability period passes. There is a promise that the profit from the sale would not only cover the premiums but would put a profit in the insured’s pocket with enough money to purchase another policy and do it all over again. Unfortunately, these brokers are over promising and grossly over representing the legality and liquidity of the resale of the insurance policy especially when it was purchased for the sole purpose of reselling.
Another common insurance scam facilitated by ignorant or greedy stockbrokers or financial advisors is the Stranger Originated Life Insurance or (“STOLI”) life insurance transaction. STOLI’S are heavily regulated transactions where a lot of illegality can take place if not executed correctly. Many states have made laws or are making laws prohibiting STOLI transactions. STOLI policies are life insurance policies where an insurance investor has their client (usually an elderly person) put their name as the beneficiary on the life insurance policy even though the insurance investor has no insurable interest in their client. This means that the insurance investor is not a relative and is only making the STOLI transaction in order to make money off of the insured person after they die.
STOLI transactions are marketed towards the elderly, especially the elderly who may not live much longer. These insurance investments are generally held for the two year contestability period then resold on the market. Many stockbrokers and financial advisors have been getting involved in the sale of life insurance due to the excessive commissions generated off of universal life insurance policies. Investors who probably don’t need life insurance are being pressured into purchasing these policies and listing the insurance investors as the beneficiaries. The elderly may be “wined and dined” by the insurance investor and told that they can get a cash bonus by making the STOLI transaction. Unfortunately, seniors are often times unaware that they have to pay taxes on the cash bonus and could be charged with theft by agreeing to the transaction. Also, STOLI transactions may make it harder for seniors from getting other life insurance in the future.
In addition, STOLI policies can be bought and sold to more than one person so many insurance investors are, in a sense, wagering on someone’s death.
If you purchased a STOLI or a viatical investment or your broker convinced you to purchase a universal life insurance policy for the purpose of reselling it you may be able to bring a legal claim for recovery of your money. For more information call Soreide Law Group at 1- (888) 760-6552 or visit www.stockmarketlawsuit.com.
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