Acting Financial Services Superintendent Linda A. Lacewell today announced that the Department of Financial Services (DFS) has issued a consumer alert warning New Yorkers to exercise caution if they own or are thinking about buying universal life insurance policies. DFS has received a higher than average number of consumer complaints about these policies, and many consumer groups and media organizations have also reported consumer issues with universal life insurance. Ahead of next year’s implementation of DFS’s “best interest” standard regulation for life insurance products, Acting Superintendent Lacewell urges all New Yorkers to carefully review their policies, the sales illustrations, and all required information disclosures to ensure they understand how the policies work, as well as the potential risks.

“DFS takes consumer protection very seriously and will take all actions necessary to ensure that policyholders are not being misled by insurers and agents offering often complex products,” said Acting Superintendent Lacewell.  “DFS wants New York consumers to know that universal life insurance policies must be carefully reviewed to avoid any issues, and to be aware of the protections provided by New York State Insurance Law.  Simply put, if you don’t understand the policy, don’t buy it, and investigate what other coverage options are available. And if you have general questions or complaints about such policies,  call us directly or visit the Department’s website for more information.”

Universal life insurance is a type of “permanent” life insurance, meaning that it can provide coverage for the policyholder’s entire life. However, consumers should know that these policies come with unique issues, among them that the internal charges of such policies can increase every year and that flexibility in timing and amount of premium payments can   affect coverage.  DFS has seen many cases of consumers who purchased universal life insurance and who made payments for years, believing their premium payment would not change or that their coverage would remain in effect. But many found that their policies had lapsed and had little to no value due to declines in interest rates, market volatility and other factors, or they were required to pay large additional premium payments to keep their coverage in effect.

The DFS consumer alert includes the following information for consumers:

• Premium payment amounts may increase:  Most universal life insurance policies do not provide long-term guarantees of premium payments, cash value or benefits.  Any payments plus any existing cash value in the policy must be enough to cover ongoing policy expenses or the policy will lapse and coverage will end.
• How current or potential premium payments are determined can affect coverage. Universal life insurance offers consumers flexibility on the amount and timing of premium payments. These payments are often set based on assumptions about future interest rates or market performance. If the actual earnings of the policy are lower than originally assumed, the consumer may have to make additional payments to keep the policy in effect.
• Consumers are entitled to receive free policy updates:  Owners of universal life insurance policies must check their policies often because changes in interest rates, policy expenses and the timing of premium payments will impact how long their policy will remain effective, or in-force. New York law allows the policyowner to receive one free in-force illustration per year, which provides a snapshot of the policy’s current status and a projection of future performance based on current conditions.
• Consumers can cancel within 10 days of receiving their universal life insurance policy:  Under the “free look” provision in New York Insurance Law, consumers can cancel the policy for a full refund if they are not satisfied with the policy for any reason. The “free look” provision begins when the policy is delivered and is available, depending on the policy language, for a period of not less than 10 days after the consumer receives the policy from his or her insurer.

Every insurer must provide a Life Insurance Buyer’s Guide to consumers before or when consumers apply for insurance. For more information, consumers should refer to the guide provided by their insurer, or contact their insurer.

Consumers can also call the DFS Consumer Hotline to report issues with universal life insurance policies at (800) 342-3736, Monday to Friday, 8:30 a.m. to 4:30 p.m.

The full consumer alert can be found on the DFS website.

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