Insurance policies

State Farm deducted overspending from NYC life insurance policies, class action alleges

A proposed class action lawsuit alleges that State Farm Life Insurance Company deducted certain monthly expenses from the value of policyholders’ accounts in excess of what is allowed under the terms of the policies.

The 12-page case more specifically claims that despite representing in its policy terms that it would deduct from an account no more than $5.00 per month as an “expense fee” for costs related to the policy’s offer, State Farm nevertheless inflated its monthly cost of insurance by charging consumers the “expense recovery” fee.

According to the breach of contract lawsuit, policyholders were harmed in that the value of their accounts was unlawfully reduced due to State Farm’s apparent practice of deducting excessive and unauthorized amounts each month.

“The policy does not state that State Farm may include charges for expenses in the cost of insurance expenses, and State Farm has not disclosed to policyholders that it includes these expenses in the cost of insurance expenses” , says the complaint. “A reasonable policyholder would understand the policy to promise that the expenses included in the monthly deduction are five dollars per month, and State Farm breached that promise by including additional expense charges in the cost of insurance.”

The lawsuit explains that State Farm offers life insurance policies that include both a death benefit and an interest-bearing account into which a policyholder deposits monthly premiums. Depending on the case, this amount accumulates over time and is called the “account value” of the policy.

The lawsuit says State Farm takes a monthly deduction from the value of an account that includes the cost of insurance, monthly fees for all riders, and a monthly expense fee. Each policy represents that State Farm’s monthly expense fee will not exceed $5.00, the suit relays.

The cost of insurance, on the other hand, is determined by the insured’s age at the policy anniversary, gender and applicable rate class, according to the complaint. The lawsuit alleges, however, that among the factors included in the applicable rate class are the costs of recovering expenses, a fact that case claims are not disclosed to policyholders.

“In other words,” the lawsuit states, “in addition to assessing a charge of five dollars as part of the monthly deduction, State Farm also recovered its expenses through the cost of insurance fees.”

The case claims that a reasonable consumer would understand the policy as promising that State Farm would deduct no more than $5.00 per month for expenses associated with its policy. Thus, the insurer breached that promise by deducting the additional expenses related to the expense as part of the cost of insurance, the lawsuit alleges.

Plaintiff, a resident of Lynbrook, New York, who owns a flexible premium adjustable insurance policy from State Farm, seeks to represent similarly situated individuals who own or had a universal life insurance policy issued by State Farm on Form 94030 in New York.

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