A new round of lawsuits moving through the courts this year involves a familiar name and a familiar complaint: a major life insurance carrier raising the internal charges on universal life policies by roughly 40 percent or more, decades after those policies were originally sold, on people who are now in their seventies, eighties, and beyond. The complaint describes what the industry itself calls a "shock lapse," a policyholder who has paid premiums faithfully for twenty or thirty years suddenly facing a bill they can't sustain, with the accumulated value of their policy on the line if they can't pay it.
This isn't a new phenomenon, and that's exactly the point worth understanding. The same company already paid out roughly 195 million dollars a decade ago to settle a nearly identical claim involving 70,000 policyholders, most of whom had bought their policies in the late 1980s and early 1990s and were only notified of a charge increase of up to 38 percent once they were already well into retirement. A separate earlier case over the same kind of charge had settled for another 57 million dollars. The mechanism behind both of those settlements, and behind this year's fresh round of litigation, is baked directly into how universal life insurance is built, which is why it keeps recurring across different policyholders and different decades rather than getting resolved once and staying resolved.
What's Actually Sitting Inside the Policy
A universal life policy works differently from a simpler term life policy. Part of every premium payment builds cash value inside the policy, and part of it covers something called the "cost of insurance," an internal charge the insurer deducts to cover the actual risk of paying out the death benefit. That cost of insurance charge is not fixed for the life of the policy in most contracts. It's contractually adjustable, within limits the insurer itself sets, based on factors like mortality experience across their whole book of similar policies. For decades, that adjustability sits quietly in the background, invisible to a policyholder who's simply paying the same premium every year and watching the account grow. Then, sometimes decades later, the insurer exercises that same contractual right and raises the internal charge substantially, and the arithmetic of the entire policy changes at once.
The Mechanics of a Trap Sprung by Timing Alone
Here's why the timing of these increases matters as much as the size of them. A cost of insurance increase in year three of a policy is an inconvenience, easily walked away from with little lost. The same increase in year thirty lands on someone who has already paid in decades of premiums, is now old enough that a new policy would be prohibitively expensive or medically unavailable, and has built an expectation, reasonable given how the product was marketed, that the policy would function as a stable, predictable piece of their estate and retirement planning. The policyholder facing the increase has, in effect, no real alternative: pay a dramatically higher premium on a fixed income, let years of accumulated value evaporate by allowing the policy to lapse, or drain the policy's own cash value faster than intended just to keep it alive a little longer. None of those are the choice a person signed up for when they bought the policy decades earlier expecting stability.
Why Regulators and Courts Keep Getting Involved
The recurring lawsuits center on a narrower and more provable question than whether cost of insurance charges are allowed to rise at all, which they generally are under most contracts. The legal fights focus on whether a given increase was actually calculated the way the contract specifies, tied to genuine, documented shifts in mortality or expense experience, or whether it was applied more broadly or steeply than the contract's own formula permits, sometimes specifically targeting older policies or ones held by policyholders less likely to fight back. That's a technical, contract-specific question, but it's exactly the kind of question that has produced nine-figure settlements twice already against the same insurer, which suggests the underlying practice, not just an isolated bad decision, is the actual problem.
What This Means for Anyone Holding One of These Policies
None of this means every universal life policy is a ticking time bomb, and cost of insurance adjustments genuinely do reflect real actuarial factors in many cases. But a policy that seems stable for thirty years because its adjustable-cost clause simply hasn't been triggered yet is not the same thing as a policy that's actually guaranteed to stay affordable, and the difference only becomes visible at the exact moment in life when there's the least room left to adjust. For anyone holding a decades-old universal life policy, the practical step is requesting a current in-force illustration directly from the insurer now, before any notice of a charge increase arrives, to see what the policy's actual trajectory looks like under current and stress-tested charge assumptions rather than the ones printed in a brochure decades ago.
— John Stone