Universal Life “Monthly Charges” Are Statutory Premiums—and Trigger § 234(2)’s Monthly-Premium Exception

1. Introduction

Fayez Dahleh v. Minnesota Life Insurance Company (7th Cir. Jan. 20, 2026) addresses how Illinois’s life-insurance lapse-notice statute, 215 Ill. Comp. Stat. 5/234, applies to a flexible premium universal life policy after it is transferred to a new owner who treats the policy as an investment.

The plaintiff-appellant, Fayez Dahleh, acquired an existing policy on the life of Gilda Perlas in 2019. Minnesota Life assessed monthly policy charges (cost of insurance and administrative charges) against the policy’s accumulation value. Whenever the accumulation value was insufficient on a monthly anniversary date, a 61-day contractual grace period began, and Minnesota Life sent a “required payment notice.” Dahleh frequently paid at the end of grace periods, but in early 2022 he failed to ensure payment was received by the end of grace, and Minnesota Life terminated the policy.

The core legal issue was whether Minnesota Life had to comply with the statutory notice and extended grace-period regime in § 234(1) (including a potential six-month grace period if notice is deficient), or whether the policy fell within § 234(2), which excludes policies “upon which premiums are payable monthly or at shorter intervals.”

2. Summary of the Opinion

The Seventh Circuit affirmed summary judgment for Minnesota Life, but on a different path than the district court. The panel held:

• The policy’s “required monthly policy charges” functioned as premiums for purposes of 215 Ill. Comp. Stat. 5/234(1) because they were the payments required to keep coverage in force.
• Those premiums were payable monthly because they were assessed on each monthly policy anniversary. Therefore, the policy fell within § 234(2)’s exception, and Minnesota Life was not required to provide § 234(1)’s statutory notice or the statute’s six-month grace-period remedy.
• The plaintiff’s argument that repeated 61-day grace periods effectively made the premium “quarterly” was rejected; grace periods were consequences of missed monthly charges, not a change in the premium interval.
• Applying § 234(1) here would create an “impossible” compliance problem: it would require notice 15–45 days before a grace period that cannot be known until the monthly anniversary date when the account proves insufficient.

3. Analysis

A. Precedents Cited

Sun Life Assurance Co. of Canada v. Wells Fargo Bank, N.A., 44 F.4th 1024 (7th Cir. 2022)

The court used Sun Life primarily for background on the “long-controversial practice” of investing in life insurance policies on others (the life-settlement/STOLI-adjacent context) and for the proposition that, under Illinois law, holders of valid policies may sell them to strangers as investments. The citation framed Dahleh’s ownership posture (a stranger-investor) as legally unsurprising, while making clear that the case turns not on insurable-interest validity but on lapse mechanics under § 234.

Life Plans, Inc. v. Security Life of Denver Ins. Co., 800 F.3d 343 (7th Cir. 2015)

Cited for the de novo standard of review on summary judgment. Its practical influence is methodological: the panel re-evaluated the statutory interpretation and policy operation without deference to the district court’s reasoning.

Olas v. ReliaStar Life Ins. Co., 712 F. Supp. 3d 1086 (N.D. Ill. 2024)

Invoked to underscore that Illinois authority on what constitutes a “monthly premium” under § 234 is “scant” and not especially helpful. The panel used that gap to justify returning to statutory text and functional meaning (what is a “premium” in substance?), rather than relying on settled Illinois appellate guidance.

Cooke v. Jackson Nat'l Life Ins. Co., 243 F. Supp. 3d 987 (N.D. Ill. 2017), rev'd on other grounds, 919 F.3d 1024 (7th Cir. 2019)

The opinion adopted Cooke’s functional definition: when a payment is required to maintain the policy, and paying it is sufficient to maintain the policy for some period, it qualifies as a “premium” in the common sense. That framing allowed the panel to treat universal-life “monthly charges” as premiums even if the contract labels “planned premiums” differently.

Hotaling v. Chubb Sovereign Life Ins. Co., 241 F.3d 572 (7th Cir. 2001)

The court cited Hotaling for the general proposition that where § 234 applies, the carrier must provide notice of an overdue premium before it can lawfully cancel the policy. Dahleh’s panel used this to stress the timing structure of § 234(1) and to set up the “impossible dead end” rationale: § 234(1)’s notice must precede the grace period.

Time Ins. Co. v. Vick, 250 Ill. App. 3d 465, 620 N.E.2d 1309 (1993), appeal denied, 153 Ill. 2d 570, 624 N.E.2d 817 (1993)

Vick supplied a key interpretive detail: § 234(1) requires notice before the premium becomes due, not after nonpayment. That reading was decisive in the panel’s pragmatic argument: for a universal-life policy where sufficiency of account value is known only on the monthly anniversary, requiring pre-default notice would be nonsensical. The panel used Vick to confirm that the statute’s timing mechanism is incompatible with treating each monthly account shortfall as something requiring 15–45 days advance notice.

B. Legal Reasoning

1) What is a “premium” under § 234?

The panel began with text and ordinary meaning. Section 234 applies to termination “by reason of nonpayment when due of any premium, installment or interest ... required by the terms of the policy to be paid.” The statute does not define “premium,” so the court applied a functional, common-meaning approach (consistent with Cooke v. Jackson Nat'l Life Ins. Co.): if a payment is required to keep coverage alive, it is a premium.

Minnesota Life argued that “premiums” were only “planned premiums,” which the policyholder could set to zero, and that the separate “required monthly charges” should not count. The court rejected that labeling move: the monthly charges paid the cost of insurance and administrative expenses, and nonpayment (whether from account value or a new payment) led to lapse. That is precisely the statutory concern—coverage termination “by reason of nonpayment.”

2) Why § 234(2)’s monthly-premium exception controls

Having treated the monthly charges as premiums, the court asked when those premiums were “payable.” The policy assessed charges “in advance ... at every monthly policy anniversary.” That made them “payable monthly,” regardless of the policyholder’s strategy of waiting until late in the grace period to inject funds. The court emphasized that § 234(2)’s exception is about the policy’s payment interval structure (premiums assessed/owing monthly), not the insured’s chosen payment behavior.

3) Grace periods do not convert monthly premiums into quarterly premiums

Dahleh argued the 61-day grace period and the “three-times monthly charges” cure amount effectively created a quarterly premium cadence. The court rejected this as a category mistake: the grace period is a remedial window after a missed monthly due date, not a redefinition of when premiums are payable. The presence of months where the accumulation value covered the charge without a grace period (e.g., March 2020, October 2020, May 2021) reinforced that the obligation remained monthly.

4) Avoiding statutory absurdity / impossible compliance

The opinion’s most forceful reasoning is practical-textual: § 234(1) requires notice 15–45 days “before the beginning of the period of grace,” and Time Ins. Co. v. Vick confirms notice must precede the due date. But with accumulation-value-funded universal life, the insurer cannot know whether a grace period will begin until the monthly anniversary date—when it can finally see whether the account value is sufficient after crediting and deductions. Imposing § 234(1) would require notice of default before default is knowable.

The court treated § 234(2) as the legislature’s built-in solution to that problem: monthly-payable policies are excluded from the pre-due statutory notice and six-month grace-period scheme.

C. Impact

• Universal-life lapse disputes in Illinois (and in federal diversity cases applying Illinois law): Insurers can argue more confidently that monthly “cost of insurance” and administrative deductions are “premiums” but also that such policies fall within § 234(2) when charges are assessed monthly—reducing exposure to § 234(1)’s notice litigation and six-month grace remedy.
• Policy drafting and administration: The decision incentivizes carriers to specify clearly that required charges are assessed on each monthly anniversary and are payable from account value or direct payment, reinforcing § 234(2) positioning.
• Investor-owned/life-settlement ownership behavior: Owners who “ride the grace period” as a financing strategy receive little statutory protection under § 234(1) if the policy’s charges are monthly-payable. The risk of a missed or lost payment (as here, a mailed check allegedly not received) falls more heavily on the owner.
• Doctrinal clarification: The opinion draws a clean distinction between (a) identifying what counts as a “premium” (substance over labels) and (b) determining whether § 234’s protections apply (interval/payability governs via § 234(2)).

4. Complex Concepts Simplified

• Insurable interest: The rule that the original purchaser of life insurance must have a legitimate interest in the insured’s life. Once a valid policy exists, it may often be sold to others.
• Flexible premium universal life: A life insurance product where the owner can vary premium payments, while the insurer deducts monthly charges from an internal “account” (accumulation value). If the account can’t cover charges, the policy risks lapse.
• Accumulation value: The policy’s internal value (funded by payments and credited interest), used to pay monthly charges.
• Grace period (contractual vs. statutory): Here, the policy had a contractual 61-day grace period after a monthly shortfall. Section 234 can create additional statutory protections (including a six-month grace period) only when it applies and notice is deficient.
• “Premiums payable monthly”: Not “the owner chooses to pay monthly,” but “the policy makes the amount due/assessed on a monthly schedule.”
• Summary judgment: A ruling without trial where no material factual disputes require a jury; the court decides purely legal issues.

5. Conclusion

The Seventh Circuit’s decision establishes a practical rule for Illinois § 234 disputes involving universal-life policies: monthly policy charges that keep coverage in force are “premiums” in substance, and when those premiums are assessed monthly, the policy falls within § 234(2)’s monthly-premium exception. As a result, insurers need not provide § 234(1)’s pre-due statutory notice or face the statute’s six-month grace-period consequence in this common universal-life lapse scenario.