Consumer Federation questions price increases on universal life insurance

Baltimore, Md -- The Consumer Federation of America has sent letters to state insurance commissioners urging them to examine rate increases for universal life insurance policies by Transamerica and two other major insurers.

A consumer advocacy group says insurers may be raising rates unfairly on some universal life insurance polices and is asking for a review by state insurance commissioners.

The Consumer Federation of America said it found that at least three insurers, including Baltimore-based Transamerica, have increased what are known as "cost of insurance rate schedules" — which are tied to a policyholder's age — and notified agents of those increases.


In letters to insurance commissioners in each state, including Maryland, the group also mentioned AXA Equitable and Voya Financial, formerly ING, and said other insurers may be taking similar steps.

"Our concern is that companies are using the contractual right to increase the schedules of cost of insurance rates in order to protect their profitability," said James H. Hunt, the consumer group's life insurance actuary.


For policyholders who are now earning lower rates, he said, "the impact is extraordinarily high insurance costs that will be exacerbated by an increase in the schedule of cost of insurance rates.

Universal life policies differ from traditional whole life contracts, in which a fixed premium is calculated to steadily increase the cash value to meet the guaranteed death benefit by age 100.

Universal life policies, which were first created in the 1970s, can work similarly, but allow the buyer to adjust the death benefit and premium costs. In the 1980s and 1990s, at a time of double-digit interest rates, such policies became popular as agents could sell lifetime coverage with lower premiums than whole life and policyholders came to expect values to continue to increase.

But interest rates have been at historic lows since the financial crisis of 2008.

Greg Tucker, a spokesman for Transamerica, said in an email that both carriers and policyowners have been grappling with the performance of older universal life policies purchased during a time of higher interest rates.

"We have made changes to our monthly deduction rates based on expectations as to what it will cost us in the future to provide this coverage," Tucker said.

He said the percentage of the increase varies by policy.

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"However, after the increases go into effect, the rates will still be below the maximum rates allowed under these policy contracts," he said.


Officials of AXA Equitable and VOYA Financial could not be reached for comment Monday.

Alfred W. Redmer Jr., Maryland's insurance commissioner, said his office had not received the consumer group's letter.

"We have recieved no complaints from consumers regarding Transamerica raising rates," Redmer said. "If we were to get a complaint, certainly we would investigate it."

Redmer said once he reviews the letter, the department will determine whether to investigate further.

"The cost of insurance is supposed to be based on the current mortality tables, which have nothing to do with the interest rates," he said. "If that is the case, that would be something worth looking at."