As a financial service professional, you may consider risk management to be an integral part of your practice. In other words, life insurance is a subject for constant review.
Today, clients may ask, "What assurance is there in my life insurance?" Assurance is a pledge, a guarantee, being sure, and being safe. Insurance is designed to create freedom from doubt, confidence of mind, and certainty.
But with the complexities of today's life products and the need to understand their provisions, are you unintentionally taking shortcuts that can eventually undermine the guarantees your clients believe they have acquired? No advisor wants to be served with a notice of due process. Depositions and legal proceedings are costly in terms of time, fees, and focus.
"Assurance" can also be closely related to the quality of the "insurance." But with more than 125 insurance companies with the highest financial ratings, there are sufficient opportunities to provide clients with the assurance they expect and deserve. However, there are many instances when advisors fail to pass the "assurance" test. Here are actual examples:
o Selling an 81-year-old an annuity with a seven-year surrender charge. Yet she says she wants to pass the asset to her children and has no need for income. The 81-year-old does not have a long term care plan. In this situation, the policy's surrender charge period may be longer than the life expectancy. Since withdrawals, there may be problems accessing funds for long term care or medical expenses. Certainly, this is an instance to ask about long term care coverage.
o Allowing the term conversion option to expire on life insurance. A client's health can subsequently change and render them uninsurable or highly rated.
o Allowing clients to call the company directly to change the beneficiary or owner and, potentially, creating a transfer for value. Insurance proceeds are generally not subject to income tax. Violating this rule will trigger an income tax.
o A client has been rated for a health impairment. When was the policy reviewed? From decline to standard is not impossible today. Review the reason for the rating. Above all, don't rely on one carrier's opinion.
o Avoiding a life settlement discussion with clients who no longer need insurance or who would benefit from a different type of insurance. Even term insurance has a value on the secondary market. If a client could receive an amount greater than existing cash value, or receive a value for term insurance, we are obliged to share the advantages and the disadvantages. CPAs and lawyers are raising the issue.
o Quoting a rate of insurance as "Super Preferred" without asking about the client's medications. This is a recipe for bait-and-switch. Ask the medications and the reasons the client has seen a physician. Create the expectations. Take a few minutes more to show a range of rates in the early interviews.
o A client is declined coverage or rated and you settle for the offer without shopping through a qualified broker.
o Failing to understand medically underwritten annuities and the benefits of higher guaranteed income streams or lower upfront deposits for your clients. An advisor recently won a case in which he competed with one of Wall Street's giant firms because he asked the right questions about health issues. The guaranteed single premium immediate annuity quote was based on a client with diabetes, who, nevertheless, had a shorter life expectancy. Thus, the guaranteed income stream was greater.
o Selling annuities with a "forever" surrender charge.
o Using words in your conversations such as, "trust me," "honestly," or "believe it or not." Relationships built on trust are not immediate, no matter what you say. They require time, knowledge, and the right choice for the client.
o Are you helping clients review their retirement plan, set up new plans and verify that maximum contributions are made? Or do you advise them to forget the retirement plan and invest in insurance or annuities?
o There are still advisors and eldercare attorneys who teach Medicaid planning. Certainly there are appropriate applications, but where is the assurance of suggesting a transfer of assets to an annuity and then filing for Medicaid?
Fortunately for consumers, issues of due diligence are only raised with a small percentage of financial professionals. However, you can be caught in these traps if you are unaware of actual guarantees. This is the business of assurance; this is the business of being sure.
Kay I. Dempsey, CLU, ChFC, CLTC is president of The Dempsey Companies in Atlanta, which provides insurance solutions for financial service professionals who specialize in estate, business, and retirement planning for high-net-worth individuals and profitable businesses. She can be reached at kd@dempseyserves.com.
