Life Insurance Company of the Southwest, an affiliate of National Life Insurance Co., is facing a renewed lawsuit over allegations of misleading sales practices tied to indexed universal life products.
The complaint, filed in the United States District Court for Vermont, claims the insurer provided materials that failed to accurately represent the index used in an interest crediting strategy. Plaintiffs allege the strategy was used to allocate accumulated value in their policies.
According to the complaint, the marketing materials omitted that the index in question was an excess index rather than a total return index. The lawsuit also alleges the insurer presented 20 years of historical performance data despite the index having existed for a shorter period.
Plaintiff Sanya Virani originally filed a suit in October 2024, but Vermont's district court dismissed the case earlier this year. The court's dismissal order stated that under Massachusetts law, illustration and buyer's guides do not form part of a legal contract.
The amended complaint adds a third claim: violation of the Massachusetts Consumer Protection Act and similar unfair and deceptive trade practices statutes in other states. Virani's original complaint had focused on breach of contract and RICO violations.
According to the filing, Virani resided in Massachusetts when she purchased an IUL policy in September 2023 with a face coverage amount of $2,767,336. The lawsuit describes the US Pacesetter No Cap Annual Point-to-Point Indexed Strategy, to which Virani allocated 100% of her accumulated value.
The plaintiff claims the Pacesetter Index was a "fraudulent sham" that advertised returns it could never deliver since the index did not exist prior to December 2021. According to the complaint, if historical illustrations have no value as a representation of past or future performance, "it is logical to question why they are provided to consumers."
The case comes amid heightened regulatory scrutiny over IUL illustration practices. The National Association of Insurance Commissioners (NAIC) first approved Actuarial Guideline 49 in 2015 to address regulatory loopholes that allowed companies to illustrate unrealistic rates of return – in some cases as high as 10%.
The NAIC released AG 49-A in 2020 and AG 49-B in 2023 to further tighten rules around volatility-controlled indices and multiplier features. According to the Society of Actuaries, AG 49-A standardizes illustrated investment returns by limiting the maximum illustrated annual rate of index credits to a single benchmark index account for all strategies.
The NAIC's Life and Annuity Illustration Subgroup is now considering further updates to its Life Insurance Illustrations Model Regulation, with official adoption expected by late 2025.
The lawsuit also comes amid strong growth for IUL products. According to LIMRA data from the third quarter of 2025, indexed universal life new premium reached a record $3.2 billion year-to-date, accounting for 25% of total market sales.
Nine of the top 10 IUL writers reported increases during the period, with policy count growing 8% in the quarter.
