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Pacific Life classified these distributions as policy loans. For
each distribution, Pacific Life issued to petitioner a policy
loan statement indicating the amount of the loan, the interest
charged, and the outstanding loan balance. Petitioner was not
required to sign any formal loan agreements with respect to these
distributions. Petitioner never contacted Pacific Life regarding
the classification of these distributions as policy loans.
Throughout the life of the policy, Pacific Life sent
petitioner an account statement at the end of each policy year
reporting the following: Beginning accumulated value for the
year, premiums paid, premium load charge, cost of insurance
charges (mortality charges, administrative charges, insurance
loads, and rider charges), interest earned, withdrawal amount,
dividends earned, the accumulated value at the end of the year,
current surrender charge, current loan debt (including unpaid
loan interest), and current cash surrender value. According to
the account statements, the accumulated value of the policy on
July 16, 1988, increased from $5,729 to $23,467 as of July 16,
2001.
On August 7, 2001, petitioner surrendered the policy. As of
that date, petitioner’s investment in the policy was $14,565, the
accumulated value was $23,509, the outstanding loans plus accrued
interest payable was $23,125, and the cash surrender value
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