Life Insurance Company Sued Over Deceptive Indexed Universal Life Practices
Life Insurance Company of the Southwest, part of the National Life Insurance Co. group, faces legal action over its allegedly deceptive sales strategies involving indexed universal life (IUL) products. Filed in the United States District Court for Vermont, this lawsuit accuses the insurer of distributing promotional materials that misrepresented the nature of the index used in their interest crediting approach. The case highlights ongoing concerns related to AI-driven prior authorization delays and regulatory compliance requirements in insurance sectors.
According to the plaintiffs, the promotional materials concealed that the index was an excess index rather than a total return index. The lawsuit further contends that the defendant used 20 years of historical data to substantiate its claims, despite the index having existed for a much shorter period. This raises important questions about compliance and transparency in the industry.
Legal and Regulatory Dimensions
Sanya Virani initially filed her case in October 2024; however, the Vermont court dismissed it, referencing Massachusetts law, which does not regard insurance illustrations and buyer's guides as contractually binding. The new complaint includes allegations of violating consumer protection laws in Massachusetts and similar statutes in other jurisdictions, shifting focus from breach of contract and RICO violations to broader regulatory compliance issues.
Documentation reveals that Virani, residing in Massachusetts, purchased the IUL policy in September 2023, with coverage worth $2,767,336. The litigation disputes the index's advertisement, claiming it promised unachievable returns due to its post-December 2021 development. This sheds light on risk management practices and questions the validity of historical performance illustrations relative to realistic outcomes.
Industry Implications and Growth
This legal issue unfolds amidst intensified regulatory examination of IUL illustration standards. The National Association of Insurance Commissioners (NAIC) has enacted updates like Actuarial Guideline 49 in 2015, AG 49-A in 2020, and AG 49-B in 2023, aiming to standardize investment returns and mitigate practices with volatile indices and multipliers. The NAIC's Life and Annuity Illustration Subgroup is considering revisions to its Life Insurance Illustrations Model Regulation by 2025.
Despite the scrutiny, IUL products experience robust market growth. LIMRA reports indicate that new premiums for these products climbed to $3.2 billion in the third quarter of 2025, representing 25% of total market sales. Growth was observed among nine of the ten leading IUL providers, with policies increasing by 8% during that quarter. This demonstrates the industry’s dynamic nature and the ongoing importance of effective underwriting, risk management, and compliance strategies.