Class Action: State Farm Inflates ‘Cost of Insurance’ Deductions from Life Insurance Policies

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A proposed class action out of Washington federal court alleges State Farm Life Insurance Company has unlawfully depleted the value of customers’ life insurance policies by charging monthly contractually unauthorized, excessive “cost of insurance” deductions. 

The lawsuit explains that State Farm offers life insurance policies that come with a savings component called the policy’s “Account Value.” The policyholder, the suit continues, can make a monthly deposit of “premium dollars” into an interest-bearing account from which State Farm will make a monthly deduction that includes what the company defines as the “cost of insurance.”

According to the terms of the defendant’s life insurance policies, this cost of insurance is calculated using only the insured’s age, sex, “applicable rate class,” and projected changes in mortality, the lawsuit says. The case alleges that despite assuring policyholders that their cost of insurance is determined using these factors alone, State Farm, unbeknownst to policyholders, considers other undisclosed factors, such as the individual’s “expense experience,” “persistency,” taxes, profit, investment earnings, and “capital and reserve requirements.” The result, the lawsuit alleges, is that the monthly deductions from policyholders’ accounts are higher than what’s explicitly authorized, especially had State Farm only considered the factors specifically called out in its policies’ terms.

“By loading these factors in Monthly Cost of Insurance Rates, Defendant knowingly causes those rates to be higher than what is explicitly authorized by the Policies and, as a result, withdraws Cost of Insurance Charges from policy owner Account Values in amounts greater than what is permitted by the Policies,” the complaint reads. “As a direct and proximate result of Defendant’s breaches, Plaintiff and the Class have been damaged, and those damages are continuing in nature in that Defendant deducted and will continue to deduct unauthorized Cost of Insurance Charges from policy owners’ Account Values.”

The lawsuit argues that State Farm’s allegedly unauthorized deductions have depleted the value of insureds’ accounts and will continue to cause harm to proposed class members throughout the life of their policies. From the complaint:

The case seeks to represent anyone in Washington who has or had a universal life policy issued by State Farm on policy form 94030.