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Lincoln National settles vanishing premium lawsuits for $28.3 million

Lincoln National Life Insurance Co. settled several class action lawsuits for $28.3 million, the company announced on Dec. 29, 2000.

The settlement is subject to court approval and affects 431,000 whole life insurance and universal life insurance policies purchased between Jan. 1, 1981, and Dec. 31, 1998. It settles all universal life class action lawsuits pending against Lincoln National Life and one whole life insurance lawsuit.

The class action lawsuits stemmed from allegations that Lincoln Life and its agents misled policyholders about the amount and duration of their premiums — the "vanishing premium" sales tactic. When used illegally, vanishing premium schemes involve false statements by agents who claim a policy's cash value will perform so well that within a certain number of years a policyholder will not have to pay premiums. In reality, cash value depends on the performance of your underlying investments and their growth cannot be predicted.

Lincoln National Life will mail letters to policyholders who are eligible for the settlement. Policyholders may select from several different options for remuneration:

  • Purchase of investment products: Policyholders may opt to purchase an individual fixed annuity with an increased interest rate for the life of the annuity, or a mutual fund with a waiver of the initial sales charge.
  • Death benefits: Policyholders may choose to receive enhanced death benefits on their life insurance policies for a fixed period of time, either three or five years. The amount of death benefit and the period of time depend upon when the policy was purchased, whether it is in-force, and whether the insured is still alive.
  • Alternative dispute resolution: Policyholders may participate in the "alternative dispute resolution" (ADR) process. Those who feel they were misled about the terms of their policy may submit a statement to the company and receive cash payment from a pool of $18 million. Participants in the ADR process automatically waive their rights to receive enhanced death benefits, although they are still eligible to purchase a fixed annuity or a mutual fund.

"We disagree with the charges and believe that all our policyholders were given proper disclosures and policy illustrations," says D'Arcy Rudnick, spokesperson for Lincoln National Life. Rudnick says the company settled the class action lawsuits in the interest of its shareholders.

Lincoln's settlement is the latest in a string of insurance company settlements in vanishing-premium lawsuits. Principal Life Insurance Co. settled a vanishing premium lawsuit in December 2000 for $374 million, and New England Life settled a similar class action lawsuit for $180 million in October 2000.

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