Churning Life Insurance | Elder Financial Abuse

A recently published California case identifies the vulnerability of elders to financial abuse through life insurance schemes like churning. The California Insurance Code provides in part that anyone “engaged in the transaction of insurance” with an elder owes that person “a duty of honesty, good faith, and fair dealing.” Now to be fair, not all life insurance agents should be tarred for the sins of the few. That said, the identification of wrongful practices can help those who protect our senior citizens stay vigilant.

Many life insurance policyholders have decades-old whole-life policies with large cash surrender values. Years ago I personally saw an effort by a life insurance agent to convince a near 90-year-old policyholder to cash out his whole-life policies and buy a new policy that for a short time would pay a higher death benefit. Fortunately, I was asked to look at this, and my advice coupled with good sense and intervention by the potential victim’s family stopped the effort. The problem with this “practice, known as churning, (is that it) earns the agent a large sales commission while substantially increasing the policyholder’s premium cost. Insurance agents’ selling annuities of dubious value under the guise of estate planning is common.”

California’s First District Court of Appeal dealt with this very issue in the 2017 Mahan v. Charles W. Chan Insurance Agency, Inc. case. An 86-year old policyholder was convinced to take the cash values from two existing whole-life insurance policies with around a $1 million dollar death benefit to purchase a new-term life policy with a slightly higher first year death benefit. The problem – the old policies had an annual combined premium of $14,000. The new policy required a $251,000 initial payment and thereafter an annual premium of $101,500. And the new policy only covered the elder for a few years. The agents – what did they get? A $100,000 commission.

While none of us really know how many California elders suffer from this scheme every year we do know that some do – and some is too many. The Mahan case makes clear that California’s Elder Abuse Act is broad enough to address this type of wrongdoing.

Hackard Law is engaged by families and elders throughout the State of California to civilly prosecute elder financial abuse cases, whether in Sacramento, Los Angeles, Alameda, or Santa Clara County. If you or a loved one has suffered this type of abuse and you want to talk about it call us at Hackard Law – 916-313-3030. We’ll be happy to speak with you.