Iowa widow claims premium-financed IUL plan jeopardized family farm

An Iowa widow has filed suit against a longtime insurance advisor and two life insurers, alleging a complex estate-planning strategy using premium-financed life insurance left her family’s debt-free farmland at risk of catastrophic loss.

The lawsuit, filed on behalf of Florence Beek in state court, claims that her advisor, along with Ameritas and Pacific Life, sold the Beek family tens of millions of dollars in indexed universal life insurance that far exceeded any legitimate estate-tax need while generating large commissions.

Defendant Carl K. Davis is a licensed insurance agent and a securities-licensed professional with the Financial Industry Regulatory Authority since 1993.

Davis allegedly “engaged in a pattern of recommending the purchase and sale of annuity products within short periods of time, commonly referred to as ‘churning’ or ‘twisting,’ for the purpose of generating commissions,” the lawsuit states.

According to the petition, Florence Beek and her late husband, Gary, spent decades building a 2,100-acre farming operation in Floyd County that was free of debt by 2010. Seeking to reduce potential estate taxes and preserve the land for their four children, the couple consulted an attorney who created a series of trusts and referred them to Davis for life insurance planning, the lawsuit says.

Premium financing panned

Davis initially sold the couple a $5 million policy with annual premiums of $102,000 through Lincoln Financial Group in 2010. But beginning in 2012, he allegedly recommended a series of larger IUL policies with Ameritas and PacLife, funded through bank loans secured by the family’s farmland, the lawsuit claims, a controversial premium-finance strategy.

“Each IUL policy was on Florence’s life,” the lawsuit reads. “She knew the [life insurance trusts] were to help with the federal estate tax issue so that they could pass their farm onto their four children and not lose the ‘farm’ to federal estate taxes.”

Representatives for both PacLife and Ameritas said they do not comment on litigation. Davis could not be reached.

“Premium-financed” life insurance refers to a structure in which the policyholder borrows funds to pay the insurance premiums rather than paying them directly. This approach is often marketed as attractive because the policyholder’s out-of-pocket cost is limited to the interest on the borrowed funds.

However, the arrangement requires the borrower to pledge collateral to secure the loan. In this case, that collateral included the Beeks’ farmland, in addition to the life insurance policies themselves.

By 2014, the complaint alleges, the Beeks had purchased $23 million in coverage through Ameritas and Pacific Life, with annual premiums topping $2.5 million. Those premiums were financed through loans that used the farm as collateral, exposing the land to rising debt and interest costs, the lawsuit claims.

The lawsuit claims the strategy was unsuitable because federal estate-tax exemptions had risen sharply in the years after the policies were sold, reducing the family’s projected tax burden. It alleges the original $5 million policy would have been sufficient to cover any estate taxes owed.

Lax oversight alleged

The complaint further alleges that the insurers and Davis failed to explain the risks of premium financing, including variable-rate loan costs, the possibility of mounting collateral demands and the danger that the family could lose its farmland if the policies underperformed.

“The excessive amount of insurance sold shows a willful, wanton and complete disregard for any benefit to Mrs. Beek, serving only to benefit the financial gains of Davis, Ameritas and PacLife,” the lawsuit alleges.

Beek’s attorneys say the death benefit on the policies has since grown to about $45 million, while related debt has climbed to roughly $38 million. The policies’ cash value is now allegedly less than the outstanding loans.

The suit accuses the defendants of negligence, failure to supervise and unjust enrichment, alleging the excessive insurance sales primarily benefited the adviser through commissions that may have approached $800,000 on one policy alone.

Beek is seeking damages and other relief, arguing that the defendants “failed to properly and fully advise” the family and placed a multigenerational farm in financial jeopardy.

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