Thursday, July 08, 2010

Vanishing Act

FoIB Jeff M tips us to this story about Conseco Life Insurance Company's recent travails with their interest-sensitive whole life plan:

"Insurance regulators from California, Florida, Indiana, Iowa and Texas led efforts to come to terms with Conseco Life Insurance Company ... The settlement affects consumers who bought Lifetrend whole-life policies from Conseco Life from 1978 to 1997."

Interest sensitive whole life plans (ISWL) were a popular alternative to universal life policies, offering potentially greater cash value guarantees. The problem arose when some unscrupulous (and/or ill-trained) agents began using them as the funding vehicles for something called "vanishing premium life." In its heyday, VPL was touted as a "guaranteed" method of owning a completely paid up life insurance policy in a few short years. The benefits included a reasonably short premium payment period, guaranteed death benefit and cash value, and some significant tax advantages.

Which reminds me: I have a bridge to sell you...

In the event, many (perhaps most) of these plans failed to perform as promised, with the result that unsuspecting policyholders ended up owing more premiums (often a lot more premiums) to keep their plans in force. Under the agreement, Conseco has agreed to pony up some $10 million that will (presumably) go towards paying down those premiums.

Folks who bought a Lifetrend policy from Conseco will be hearing from them shortly with details and contact information.
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