My Mother purchased a Life Insurance Policy through Lincoln National Life Insurance? Is there fraud?
The policy is a Flexible Premium Adjustable Life Insurance Policy. A lawyer nephew of her new husband sold it to her, and she signed it before we, or her lawyer got to look at it. She claims 1) She has to pay no premiums 2) If she dies before 2011, we will receive million 3) If she lives longer, she gets 0,000 per year sent to her! Is there a fraud like this going on?
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May 15, 2010 | Filed Under Insurance Defense Lawyers
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7 Responses to “My Mother purchased a Life Insurance Policy through Lincoln National Life Insurance? Is there fraud?”
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The company is sound, and the product is legitimate. Was it appropriate for your mother? There isn’t near enough information here to tell.
This is a garden variety universal life product. The information you’ve given here is plausible, but it is also based on certain assumptions; primarily, the internal rate of return of the policy. If it was illustrated conservatively and realistically, it should perform at least as well as described. If not, your mother may need to pay additional premium to keep the policy afloat and in force.
A word of caution: Consult your tax advisor on the dangers of allowing this policy to lapse. Once your mother has withdrawn cash from the policy beyond what she’s paid in (cost basis), the tax consequences of a lapse could be horrendous.
Whether or not the policy was sold responsibly, your concern illustrates what I preach time and again in this forum: Life insurance is not to be purchased from salespeople (agents, brokers, etc.) or financial laypersons. If someone’s job is to perform a thorough and unbiased analysis of your financial situation, buy from him or someone he refers. If his job is to sell insurance, walk away.
.
She will pay no money and upon her death within 3 years receive 4 million. If it sounds like a scam or seems to good to believe it most likely is.
Do whacko plans exist? Yes.
Does Lincoln National exist? Yes.
Is the policy appropriate for her? I don’t know.
The only thing that’s clear is that the nephew probably got one heck of a commission off it.
No premuims? Insurance doesn’t/can’t work that way. $4 million? I’d push her off a cliff. $300k per year? No premiums?
Either she completelty miss understood, or had to fork over a MASSIVE down payment. If she put down a down payment, check with your state insurance comissioner’s office to find out if this ligit.
Lincoln National is a large, reputable insurance company, currently rated A+ by AM Best.
Any fraud, would have been done on the part of the salesman who sold it to her.
Not having a clue what the policy really says, the only way you pay no premiums, is by giving a HUGE up front payment. With that kind of death benefit, she would have had to pay six figures up front.
I’d strongly suggest she completely misunderstands what she’s purchased. If she’s an older mother – like in her 70′s, you might want to consider a guardianship situation for her.
There’s a possibility that some investors are paying the premiums on her behalf (or she’s financing the premiums) with the intent on selling it to an investor group after the two-year contestability period. (My answer is based on this assumption.) But there seems to be some misinformation.
1. Investors do not pay an annual amount for a life settlement like this – it’s a one time deal. A 7.5% settlement sounds okay, but not 7.5% every year. Somebody got that wrong.
2. She may have said she has to pay no premiums, but she must be aware and have disclosed to LNL that either she is financing the premiums with the intent to sell the policy or that an unrelated third party is paying the premiums on her behalf. LNL is cool with premium financing in many cases, as long as the intent is to keep the policy for business or personal reasons. They do not generally like arranged financing with the intent of a stranger owned life insurance (STOLI) policy. They almost always shy away from issuing a policy where the insured does not have "skin in the game". They may not have gotten all the facts up front before they issued the policy, which is a big no no.
You can email me with other questions.
Aaron
Why do you think there is fraud? She likely replaced an old policy with a whole lot of cash in it. Should she have done it or was she persuaded to do it for the benefit of the agent….who knows?