Principal settles class action lawsuit for $374 million
The Principal Life Insurance Co. has settled a class action lawsuit for $374.2 million alleging that its agents engaged in sales fraud.
Des Moines, Iowa-based Principal agreed to the settlement on Dec. 15, 2000, in U.S. District Court in Des Moines. The settlement is subject to a judge's approval. If approved, the company will reimburse an estimated one million current and former life insurance policyholders and annuityholders.
Principal used illegal sales
of "vanishing premiums."
The lawsuit stemmed from policyholders' allegations that Principal used misleading sales pitches, including claims of "vanishing premiums," to persuade customers to buy cash value life insurance policies. Vanishing premium schemes, when used illegally, are false statements made by agents, claiming that a policy's cash value will perform so well that in a certain number of years the policy will pay for itself and the policyholder will not need to pay additional premiums out of his or her pocket.
Other misleading sales tactics allegedly used by Principal agents include "churning" of life insurance policies and annuities; overstating the financial performance of cash value policies and annuities; selling insurance as an investment product; and targeting senior citizens for annuity purchases.
Principal denies any wrongdoing. "The allegations are similar to those made against other insurance companies in class action lawsuits across the country," says Rhonda Clark-Leyda, spokesperson for Principal. "We believe it is clearly in the best interests of our customers to resolve this dispute without continued lengthy and expensive litigation."
The settlement offers several ways for eligible policyholders to receive remuneration. Policyholders may choose between free term life insurance or participation in an individual claim-review process. Individual claim review provides a class action plaintiff with cash compensation depending on the severity of his or her claim. In addition, some plaintiffs have already received interest rate enhancements on existing policies.
Current and former Principal customers who are eligible for the settlement will be notified by mail.