Insurance companies have the same problem everyone else does -- poor return on their investments. With their investment portfolios lagging, insurers are jacking up premiums, a tactic that is not going down well with consumers.
In the latest skirmish, a federal lawsuit filed in Los Angeles says that consumers who bought life insurance from Transamerica decades ago are now being hit with large increases in their premiums, leaving many with little alternative but to cancel the policies they've been paying on for years.
Calling it a "betrayal of the baby boomers," Consumer Watchdog says Transamerica is betraying the trust of seniors who bought life insurance policies in the 1980s and early 1990s. The "universal life" policies promised to pay monthly interest of no less than 5.5% annually as well as death benefits in exchange for premiums paid into a "policy savings account."
But in June 2015, policyholders began receiving letters announcing an increase of 38% iin the monthly premium, leaving them with the choice of paying sharply higher premiums or losing the policies.
Dumping the elderly
“After taking their premiums for many years, Transamerica is attempting to dump its elderly and retired policyholders at a time in their lives when they are counting on the policies,” said Harvey Rosenfield, founder of Consumer Watchdog and one of the lawyers working on the case.
Transamerica says it is raising the monthly charges based on “our future costs of providing this coverage.” But the lawsuit alleges that Transamerica breached its contract and acted in bad faith, claiming it is raising its rates as the time nears when policyholders will begin collecting on the policies.
The lawsuit argues that because people are living longer, life insurers' costs should be lower, since fewer policyholders die in a given year. Instead, it says, Transamerica is improperly trying to recoup losses it has sustained as the result of low interest rates since the Great Recession.
Named plaintiffs in the suit include Mary and Gordon Feller, who bought their policy in 1989 and planned to save the accumulated interest for their retirement.
“Now, 26 years later, after we have paid tens of thousands of dollars in premiums all these years, the company has put us in the position of either paying much higher premiums or losing our policy and all the savings we put into it. Transamerica has betrayed our trust and the trust of its policyholders across the nation," Mary Feller said in a statement issued by Consumer Watchdog.