--- title: Universal Life Insurance Makes Big Promises. Can These 'Overly Complex' Policies Actually Keep Them? description: Universal life insurance is a complex product that may be hard for consumers to understand and insurers to sell without trouble. authors: - name: Paul Reynolds role: Senior Editor, Special Projects url: https://money.com/author/paul-reynolds/ bio: Money’s Special Projects Editor, Paul Reynolds, writes and edits stories about many types of insurance, including life, pet, travel and auto. He was previously Money’s Insurance Editor. education: BA, Psychology, Queen's University (Canada), Bachelor of Journalism, Carleton University (Canada) at_money_since: 2020 articles: 95 covers: - Insurance - Banking - Business - Debt - Economy and Politics - Health and Wellness - Housing - Identity Theft - Investing - Lifestyle - Loans - Personal Finance - Pets - Professional Services - Retirement - Shopping - Taxes social: - https://linkedin.com/in/paulreynoldsed/ former_staff: true published: '2021-07-19T21:28:34.000Z' modified: '2024-01-10T16:39:24.000Z' section: Insurance tags: - Guides - SMM21 word_count: 796 canonical: https://money.com/universal-life-insurance-usaa-settlement/ type: Article source: structured-blocks --- > **Disclosure:** We research all brands listed and may earn a fee from our partners. Research and financial considerations may influence how brands are displayed. Not all brands are included. [Learn more](https://money.com/page/disclaimer/). ![A life preserver ring with a long rope tangled around.](https://img.money.com/2021/07/Insurance-Life-Complexity-Regulations-1.jpg) Universal [life insurance](https://money.com/best-life-insurance/) promises to offer both a death benefit and investment returns pegged to the stock market. Yet experts say a recent $90-million legal settlement highlights how that complex combination can trip up consumers -- and even insurers themselves. In a settlement made public earlier this month, insurer USAA -- which serves military families -- agreed in the U.S. District Court in San Antonio, Texas, to reimburse what the plaintiffs asserted were overcharges to 122,000 policyholders for various maintenance and administration fees. In a brief statement, USAA maintained it “acted appropriately at all times” and “reached a mutually beneficial settlement that allows us to avoid lengthy litigation.” A spokesman reached by Money declined further comment. Ronald Sweet, professor of business at The University of Texas at San Antonio, characterizes the company’s missteps as “fairly technical breaches” of language. To Sweet, the settlement says less about USAA -- which he describes as “one of the good guys in an ethically challenged business” -- than it does about [universal life insurance](https://money.com/universal-life-insurance-guide/) as a product, which he describes as “overly complex” for both buyers and insurers. Steve Parrish, a professor at the American College of Financial Services points out there has been litigation over universal life insurance for quite a number of years. “In some ways, the USAA case is nothing new.” Here’s why experts see universal life insurance as flawed, that and what insurers and would-be buyers insurers should do. ## Universal life's stock-bond mismatch The heart of the legal trouble for insurers, our experts say, is the thorny way universal life combines a death benefit and an investment account. Insurers must pass along to policyholders at least a part of the gains of the stock market -- since with universal life, returns on the investment accounts are typically pegged to indexes such as the S&P 500. Yet to provide those returns, insurers are disallowed by law from investing in stocks directly. Instead, they’re stuck with more conservative investments such as bonds, whose yields have been extremely low for some years -- tracking the slump in interest rates. That’s created a financial squeeze for the insurers. In response. explains Parrish, they’ve turned to adjusting what people pay to keep the policy every month. Known as the monthly COI, for Cost of Insurance, this covers the premium for the mortality benefit along with administrative and other costs. As is alleged in the USAA case, insurers have raised the COI charges, Parrish says, or adjusted the COI’s terms to be less generous to policyholders. Those changes, he adds, have raised objections, and those are “what’s really led to some of these recent lawsuits.” ## How universal life insurance should be handled At the root of some of the trouble over COI changes, our experts say, are a disconnect between the return a policyholder may be led to expect from a universal life policy and what it actually delivers. The policies, they point out, are often sold with the use of illustrations of the long-term performance of the investment component, based on projected returns. The industry, Parrish says, “needs to start from the beginning and come up with a better way to present \[universal life policies\] to consumers. I don’t care how smart the customer is, this is too complex a product to be sold in this way.” Sweet concurs, saying that “insurers should be required to provide historical performance of their products compared to simpler products -- such as low-cost indexed mutual funds. \[The policies\] should also be shown with future extreme scenarios so the consumer can understand what happens if markets do not come out as modeled in the product illustrations.” Until such data is provided, Sweet says, and in a way, he recommends consumers “avoid these products. Why should any consumer ever buy a product when it is impossible to compare the offerings from different companies?” Parrish is less categorical, saying that “universal life insurance has a place, still.” (Since the interest earned on the cash accounts of these and other types of permanent life policies (such as [whole life](https://money.com/whole-life-insurance-guide/) ones) are tax-sheltered, universal life is an option for high-income individuals who have tapped out on their annual contribution to such other sheltered products as IRAs and [401(k)s](https://money.com/401k-and-401k-rollover/).) But Parrish says when considering universal life, it’s vital to involve an advisor to help choose among the options, given that “the information about these policies is dubious at best and fraudulent at worst.” Apart from helping with the initial purchase, he says, such a professional advisor can help with ongoing monitoring, which is “crucial due to the long ownership period associated with life insurance.” ```json { "@context": "https://schema.org", "@graph": [ { "@type": "BreadcrumbList", "@id": "https://money.com/universal-life-insurance-usaa-settlement/#breadcrumb", "itemListElement": [ { "@type": "ListItem", "position": 1, "name": "Home", "item": "https://money.com" }, { "@type": "ListItem", "position": 2, "name": "Insurance", "item": "https://money.com/insurance/" }, { "@type": "ListItem", "position": 3, "name": "Universal Life Insurance", "item": "https://money.com/universal-life-insurance/" }, { "@type": "ListItem", "position": 4, "name": "Universal Life Insurance Makes Big Promises. 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