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Is it legal for an insurance company to take money out of a life insurance policy to pay the monthly bill.?

  • My mom received a letter telling her her life insurance policy was about to expire. She called and found out the value of her life insurance policy was $0. Her broker she got the policy from never told her she had to chose another policy because the cost of her current policy was going up from $ 50 to $125.The insurance company never changed the bill to reflect the increased cost of the insurance. She was paying 50 a month for awhile and the insurance Company was taking the difference of $75 a month out of the value of the policy to cover costs and now her life insurance is worthless. They took the money out with out her knowing. My question is can a insurance company do that without you knowing that.

  • Answer:

    MB was the only one with the right answer. Most people do not understand how universal life insurance policies work. Sorry you found out the hard way. To answer your question, yes it is legal. Actually that is how the policy works. But failure to explain the policy properly may not be legal. I suggest you speak to the Department of Insurance in your state to have them explain it to you.

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It depends on how the policy is set up. It's very, very common, for the cash value to be used to pay premiums, if the insured doesn't pay. When the cost jumps up like that, it's a big hint that she has a "universal life" insurance policy. I'm not a fan of that type of policy, at all. Odds are, since they did it, that she bought the kind of policy that's used to pay premiums. It's generally sold as, "you pay in for 10 years, and then the EARNINGS pay your premiums for the rest of your life and you never have to pay for it again!" The flip side of that is, if the earnings are pathetic, you have to start paying for it again . . oh, and it costs more.

mbrcatz

It depends where you live. In the case of the United States each state has specific guiding rules about the insurance industry. It also has to do with the terms of the agreement. She will have to find the initial paper work and re-read it. However she should have been alerted to the change in price and provided options. Its unlikely anyone would barrow against the policy to pay the bill.

J T

Your mother has overlooked other letters. While the policy has no value now, she did in fact get value while it was in force. Had she died since the policy premium increased, she would have gotten something.

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I find it very difficult to believe she was not notified. They would have sent notifications of the increase and more notifications that they were taking an additional amount from the cash value.

Lynn

I suggest you and your mother read the terms outlined by the company when she signed for the policy. She surely has a copy.

littlegogi

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