hances are you don't spend a lot of time thinking about life insurance. For many people, thinking about death isn't the scary part - it's dealing with the insurance agent.

It turns out that consumers had very good reason to fear some agents and some companies in the 1980s and early '90s because of rampant fraud and abuse. But now it's the insurance companies who are running scared; the tables have turned and revenge is at hand.

In the late 1970s, insurance regulatory changes and high interest rates made companies develop new "investment-related" products such as universal life insurance and agents started to sell life insurance as an investment. Policyholders began to consider permanent life insurance products as part of their investment portfolios.

Additionally, the advent of computer software led some companies to aggressively distribute insurance illustration software, assuming interest rates of up to 13 percent or 14 percent throughout the policy's life. Other companies figured out a way to override the maximum assumed interest rate and plug in their own numbers of as much as 19 percent. If the software would not allow this override, the agent would pay to have a simple spreadsheet program of his own developed for use in marketing permanent life insurance policies.

With these assumed high interest rates, illustration premiums would seem to "vanish" in as little as four or five years. Normally, premiums vanish because the dividends (if it's a whole life policy) or interest (in the case of universal life) are enough to keep the policy in force by paying the premiums from the cash buildup. This is especially true for universal life insurance, because unlike whole life insurance (which has a fixed premium), a person could pay less than the recommended premium - sometimes even skipping a year. But what really happened was disastrous: As actual interest rates dropped, premiums did not vanish, but continued for up to a decade or longer.

Even worse, some policyholders found that their vanishing premiums suddenly "reappeared," and, in some cases, they were unable to pay them. Many agents aggressively marketed this vanishing premium (or "premium offset") method of paying for insurance. There is nothing wrong with the vanishing premium concept, provided that a reasonable interest rate of 6 percent to 8 percent is used in the illustration as the assumed dividend rate. Under this analysis, the premium might vanish after 15 years or so.

Additionally, some agents "churned" policies. This means they convinced policy holders with old life insurance policies containing large cash values to buy replacement policies, thereby earning the agent hefty commissions on the new sales. These new policies usually had a much higher death benefit, and the sales illustrations (using unrealistically high interest-rate assumptions) would show little or no additional premium payments required, because the cash values from the old policies were supposed to be enough to fully fund the new ones. It looked like a great deal to the policyholders - higher death benefits with little or no out-of-pocket expense - but those new commissions and other new policy expenses took a big bite out of the built-up cash values, and of course interest rates dropped. The result? Many victims of churning were faced with unexpected, ongoing premium payments just to keep the policies in force. They had to pay up - and keep on paying - or let the policies lapse and lose the death benefit altogether.

There is no justification for churning policies. People started contacting their attorneys and attorneys started realizing there could be big money at stake - possibly a class action suit.

You could be affected if:

How to find out if you are a victim:

If you are part of a suit and your situation was particularly egregious, you can opt out and seek restitution through another procedure. This is sometimes called the "alternate dispute resolution process," and it deals on a case-by-case basis with the sale of life insurance policies. You are only better off opting out of the class action suit if you can show fraud or egregious behavior by the life insurance agent.

When all is said and done, who are the winners?

The losers:

The sheer results in terms of restitution and company penalties are staggering:

With these kinds of numbers at stake, it's not surprising there are more than 30 class action suits pending. Many industry analysts think this is just the tip of the iceberg. Many insurers are bracing themselves for lawsuits like these and are putting "pro-active" policies in place to deal with a lawsuit the moment it is filed.

The policyholders who are part of the class action lawsuits do not get big checks in the mail. They usually have a variety of options from which to choose, including: extra dividend or interest payments, a low-interest rate loan to pay off debt incurred by borrowing from the policies, the waiver of premiums on all future policies, and additional cash value put into policies.

The only good that comes out of this debacle is that it forces life insurance agents to sell in a more ethical manner and it forces life insurance companies to supervise and train their agents better.

Supervision is the key because many of the companies being sued have said that they cannot control what the individual agent shows its prospective policyholders. Many companies now require that the sales illustrations be attached to the policy application.

Most of us do need life insurance of some kind and a good life insurance agent can be as important as a good financial planner. Some of the older life insurance companies have been around for more than a hundred years, and most sell insurance for what it is -protection against death, with a savings account built in (if you buy permanent insurance with cash values building up). Most life insurance agents are ethical and most life insurance companies are good ones, but a company cannot control what an agent does face-to-face with a prospective client.

Hopefully, the industry will redeem itself in the eyes of the public so that consumers can once again believe what they are being told when purchasing a policy.