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Life Insurance Fraud: "Vanishing Premium" Insurance Policies

Several years ago, the life insurance industry began marketing individual life insurance policies which they could sell using "vanishing premium" sales illustrations. These policies proved attractive to consumers looking for permanent life insurance without the lifetime of annual payments. Many estate planners also recommended their clients purchase joint life or second-to-die policies using the "vanishing premium" method to fund estate taxes. With the use of confidence-inspiring, computer-generated sales illustrations, life insurers and life insurance agents routinely represented that the "vanishing premium" life insurance policy only required premium payments for a few years and thereafter the policy "paid for itself" out of interest or dividend earnings.

In reality, in many cases, these sales illustrations were based upon unrealistic assumptions about future interest rates and the insurance company's earnings. What then happened is, in later years, while the policyholder was paying his scheduled premiums for the number of years illustrated, the insurance company quietly reduced its interest rates or dividends to lower but more realistic levels. About the time the policyholder was expecting to stop making premium payments and let the policy pay for itself as represented, the company or agent would come back to the policyholder with a "revised" illustration showing the need for many more years of premium payments. The policyholder having budgeted to stop making payments for the life insurance, was then presented with a shocking and financially threatening dilemma: 1) either continue making expensive premium payments for many more years, or 2) risk having the insurance policy lapse for non-payment.

Fortunately, the laws of Texas and many other states provide life insurance consumers with a cause of action for damages caused by deceptive and misleading insurance sales practices. Successful suits have been prosecuted against many of North America's largest life insurance companies and their agents. For more detailed information about vanishing premium life insurance sales tactics and the legal remedies available to consumers who have been damaged by them, please read David Tekell's article "Life Insurance Fraud: When the Vanishing Premium Reappears", or contact David Tekell.

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