Complicated life insurance policy costs USAA $ 90 million settlement

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Anyone who owns or has owned a particular type of USAA life insurance policy in recent years could receive $ 50 – or even more.

USAA Life Insurance Co. agreed to pay $ 90 million in a class action settlement alleging that some policyholders were routinely overcharged.

The policies in question – so-called “universal life insurance policies – combine a savings account with a life insurance contract. These offers are common in the industry, but critics say they are too complicated and open to abuse. Unlike standard policies, monthly premium rates are not fixed and may change based on market conditions.

With the case settled, there was no trial or judgment on the merits of the case by a court.

The lawsuit, filed in 2017, alleged that the USAA overcharged these policy owners with inflated rate factors outside of what their own policies allowed, which are limited by age, gender and “rate class.” “. The lawsuit also alleged that the USAA concealed these additional factors.

An attorney for the plaintiffs said in a statement that their expert calculated that the USAA overcharged its clients between $ 360 million and $ 460 million. The company disputed the allegations in a brief statement and said it acted appropriately at all times.

“We have reached a mutually beneficial settlement which allows us to avoid lengthy litigation and continue to focus on serving members,” he said in a statement.

The settlement extends to the holders of approximately 122,000 universal life insurance policies in force since March 1, 1999.

Class members will receive a check in varying amounts and do not need to file a claim. They will automatically receive a check within 30 days of a final settlement date.

The settlement is still subject to approval in a federal appeal case. A hearing in the federal appeals case is set for August 26 at the United States District Court in San Antonio.

The lawyers representing the plaintiffs in the class action will receive 30% of the settlement, in addition to expenses which could total up to $ 300,000. An administrator in the case will receive up to $ 200,000. The principal plaintiff, a 73-year-old man living in Florida, will receive additional compensation of up to $ 20,000.

Further details on the regulations are available at usaacoisettlement.com.

Universal life insurance policies have been criticized in recent years.

Ronald Sweet, a professor of finance at the University of Texas at San Antonio and a former USAA employee himself, said insurance companies started offering complicated products in the 1980s to compete with banks and mutual funds, growing share of consumer investment. Universal life insurance was one of the first products to come out of this era, although Sweet said it was not as complex as other products available in the industry today.

Many insurance companies often downplay the complexity of these policies during the sales process, he said.

“It’s just a recipe for unethical behavior,” Sweet said. He said when he worked for USAA, “it was one of the most ethical companies in the business.”

USAA Life, unlike many insurance companies, does not pay its salaried employees a commission for the sale of plans, although it does provide an annual bonus based on performance metrics.

USAA Life is one of many subsidiaries of USAA, the San Antonio-based insurance and financial services giant.

Kevin McCarty, the former Florida insurance commissioner who led a national task force investigating the life insurance industry, said policies that combine investment and insurance are vulnerable to abuse. These complicated plans mean “it’s harder for the policyholder to figure out what they’re paying for.”

“Frankly, it shouldn’t be widely used in the market, especially given the breadth of other financial instruments to invest in today,” he said.

The task force he led investigated insurance companies for failing to pay beneficiaries of life insurance policies when those beneficiaries failed to file a claim. Often, he said, the beneficiary simply did not know the policy existed.

In this case, USAA shone as a positive example. The insurance giant was one of two companies the task force found that proactively notified beneficiaries.


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