Indexed Universal Life Lawsuit: Pacific Life, Shelstad, and Virani

Indexed universal life insurance lawsuits are moving through courts across the country, targeting major carriers over allegations that policies were sold with misleading illustrations, hidden fees, and cap rates that were quietly cut once buyers were locked in. As of mid-2026, the litigation has produced a $58.3 million class settlement against Pacific Life, a $57 million settlement fund from Transamerica awaiting final approval, a $1.5 million Idaho jury verdict, a confidential settlement with NASCAR champion Kyle Busch, and active federal cases testing RICO theories and premium-financing schemes.

What Policyholders Are Alleging

Nearly every indexed universal life (IUL) suit turns on the same complaint: the way the product was sold did not match how it actually worked. Plaintiffs consistently point to three problems.

Illustrations built on maximum crediting rates and smooth historical back-tests, projecting policies as self-sustaining when they were not.
Costs that were never adequately explained at the point of sale, including cost-of-insurance charges that rise with age, premium loads of 5 to 10 percent, and surrender charges as high as 10 to 15 percent in the early years.¹
Cap rates that carriers allegedly lowered by 30 to 50 percent from originally illustrated levels once policyholders could no longer exit without heavy surrender charges.¹

Many IUL policies were marketed as “tax-free retirement plans.” Lawsuits allege that framing obscured a serious risk: if a policy lapses with outstanding loans against it, those loans can become immediately taxable as income, a scenario the plaintiffs’ bar calls the “IUL tax bomb.”²

The Pacific Life PDX Class Settlement

The largest IUL resolution to date involves Pacific Life’s Pacific Discovery Xelerator (PDX), sold primarily in California between late 2016 and 2019. Abigail Mamboleo filed a class action in Orange County Superior Court in June 2021, alleging Pacific Life used misleading marketing materials and illustrations.³

The parties reached a tentative $58.3 million settlement in late 2025. Under its terms, current policyholders whose PDX policies remained in force on October 31, 2025, receive credits to accumulated value drawn from a $33 million fund, allocated by each policyholder’s proportional share of total premiums paid. Former policyholders whose policies had surrendered or lapsed are eligible for up to three years of term life insurance at no cost, with relief for that group capped at $25 million.³ The court held a final fairness hearing on May 7, 2026, and a final approval order has been issued.⁴

Kyle Busch’s Confidential Settlement

NASCAR champion Kyle Busch and his wife Samantha sued Pacific Life, agent Rodney Smith, and Smith’s firm Red River LLC in October 2025. They alleged the policies were promoted as a fully funded, self-sustaining “tax-free retirement strategy” that would require only five years of premium payments.⁵ The couple said they paid more than $10.4 million in premiums and sought $8.5 million in damages.⁶

Pacific Life moved to dismiss, arguing the Buschs had signed documents acknowledging a 30-year premium obligation and that the policies lapsed only because the plaintiffs failed to fully fund them. The case did not reach trial. A confidential settlement was finalized according to a February 26, 2026, court filing, with each side bearing its own fees and costs.⁶

The Shelstad Verdict and Insurer Liability

One of the few IUL cases to go to a jury produced a verdict that extended an insurer’s liability into a Ponzi scheme funding the premiums. Karen Shelstad, a 69-year-old retiree, alleged agent Ronald R. Hill persuaded her to invest $1.8 million in a PDX policy funded by supposed 8-percent annual returns from a “structured settlement” product offered by Future Income Payments LLC. That product was later revealed to be a nationwide Ponzi scheme.⁷

In May 2024, an Idaho jury found Pacific Life and Hill liable and awarded Shelstad $1,526,156.54 in economic damages. Evidence at trial showed Pacific Life underwriters had flagged concerns about the large death benefit and whether a retiree could afford the premiums, and the application disclosed that premiums would be funded by “cash flows from purchased structured settlements.” The insurer approved the policy anyway, and trial evidence suggested Pacific Life expedited the sale because of competition with another carrier.⁷ Hill had submitted the application before he was officially appointed as a Pacific Life agent, and the jury found he acted with apparent authority on the insurer’s behalf.⁸

Transamerica’s Cost-of-Insurance Cases

A parallel wave of universal life litigation focuses not on illustrations but on whether insurers can raise cost-of-insurance (COI) charges on policies already in force. Transamerica has been the primary defendant.

The pending case is Estate of Handorf, et al. v. Transamerica Life Insurance Co., filed in the U.S. District Court for the Northern District of Iowa. Plaintiffs allege Transamerica breached its contracts by raising COI and monthly deduction rates on certain universal life policies in 2022 and 2023. Transamerica agreed to a $57 million settlement fund that received preliminary court approval, with a final approval hearing scheduled for July 13, 2026. The company denies wrongdoing but will freeze COI increases on covered policies for five years and pay class members a minimum of $200 per qualifying policy, distributed automatically without a claims process.⁹

Earlier Transamerica battles set the pattern. In 2015, DCD Partners sued in the Central District of California after Transamerica imposed a 50-percent premium increase on more than 2,000 life policies. A jury returned a verdict for DCD in September 2017, awarding $5.6 million, and the court enjoined Transamerica from continuing to charge the disputed rates.¹⁰ A 2016 case, Feller et al v. Transamerica, targeted a 38-percent increase in monthly charges on adjustable universal life policies sold in the late 1980s and early 1990s that had guaranteed a minimum 5.5-percent annual interest rate.¹¹

Virani v. NLV: Proprietary Indices and RICO

New legal ground is being tested in Virani v. NLV Financial Corporation, et al., filed in October 2024 in the U.S. District Court for the District of Vermont. Sanya Virani, who bought an IUL policy with a $2,767,336 face amount, alleges Life Insurance Company of the Southwest, NLV Financial Corporation, and National Life Insurance Company operated a racketeering enterprise through marketing agencies to sell policies using fabricated performance data.¹²

The suit targets a proprietary strategy called the “US Pacesetter No Cap Annual Point-to-Point,” which Virani calls a “fraudulent sham.” The complaint alleges the insurer presented 20 years of historical performance data for an index that did not exist before December 2021, and that marketing failed to disclose the index was an “excess return” rather than a “total return” product.¹³ Claims include breach of contract, RICO violations, and state consumer protection violations.

The court dismissed the first amended complaint in January 2026 but granted leave to amend. After a second amended complaint and another motion to dismiss, the court held a hearing in April 2026, and defendants filed an answer in May 2026. The case is in discovery, with no class certification motion yet filed.¹⁴ Commentators have noted that courts are generally reluctant to apply RICO to what might otherwise be state-law fraud or contract claims.¹⁵

The Beek Premium-Financing Case

A distinct strain of IUL litigation involves premium financing, in which high-net-worth buyers borrow money to pay premiums against collateral, betting policy growth will outpace loan costs. Florence Beek, widow of Iowa farmer Gary Beek, sued advisor Carl K. Davis and carriers Ameritas and Pacific Life, alleging negligence, failure to supervise, and unjust enrichment. By 2014, the Beeks had purchased $23 million in IUL coverage with annual premiums exceeding $2.5 million, using their 2,100-acre family farm as collateral for the bank loans funding the premiums. The complaint alleges commissions on a single policy may have approached $800,000.¹⁶

Death benefits have reportedly grown to about $45 million, but loan debt has climbed to roughly $38 million, and current cash value is allegedly less than the outstanding loan balance. The complaint argues the strategy was unsuitable because federal estate-tax exemptions rose significantly after the policies were sold, removing much of the tax-planning rationale. As of April 2026, the case remains in the pleading stage, with no rulings or settlement reported.¹⁶

The Legal Theories Behind the Cases

IUL suits rely on several overlapping theories. Fraudulent or negligent misrepresentation requires the plaintiff to show a false material statement, knowledge of falsity or reckless disregard, and detrimental reliance. Breach of contract claims target situations where the insurer allegedly violated the policy’s own terms, such as raising COI charges beyond what the contract permits. State consumer protection statutes prohibit deceptive trade practices and sometimes allow enhanced damages.¹

Commissions run through the cases. IUL policies generate higher agent commissions than simpler products like term life, and plaintiffs argue this creates a structural incentive to present unrealistic best-case scenarios. The Busch lawsuit named the selling agent as a co-defendant. The Shelstad jury found an agent acted with apparent authority even though he was not formally appointed by the insurer when the sale was made. The Beek complaint alleges nearly $800,000 in commissions on a single policy.

Statutes of limitations for IUL claims generally run three to six years. Courts have recognized that the clock may start not from the original sale but from when the policyholder first received notice something was wrong, such as an unexpected premium increase or a lapse warning.¹

Other Carriers Under Scrutiny

Pacific Life, Transamerica, and the National Life Group entities are the most active defendants, but they are not alone. Plaintiff-side investigations or litigation have been reported involving Allianz, Minnesota Life, Columbus Life, North American Company for Life and Health, Lincoln National, National Western Life, Nationwide, and Ameritas.¹⁷¹ In 2014, Fidelity & Guaranty Life Insurance Company settled a California class action alleging deceptive sales presentations and encouragement to fund IUL purchases through home equity lines of credit or mortgage proceeds.¹⁸

The Regulatory Backdrop

The National Association of Insurance Commissioners has tightened rules on IUL illustrations for over a decade. Actuarial Guideline 49, adopted in 2015, set the first uniform caps on how these policies could be illustrated. When carriers used multipliers, bonuses, and creative fee structures to inflate illustrated values, the NAIC responded with AG 49-A, effective for policies sold on or after December 14, 2020. Further revisions followed in 2023 to address proprietary volatility-controlled indices and fixed-bonus practices, and a further update took effect in 2026 with enhanced consumer-protection disclosures.¹⁹

Regulators are still finding problems. As of mid-2026, the NAIC’s Life Insurance and Annuities Illustrations Working Group is examining index annuity disclosures that suggest annual returns of 10 to 25 percent for several years.²⁰ An NAIC consumer representative said in June 2026 that current IUL illustrations “underrepresent risk” and the “failure chances” of the policies.²¹

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