Consumers procure life insurance for protection, but do they need to be protected from it at the same time? Too often the answer is yes. Maybe it’s because I’m on the consulting side of the market that train wrecks disproportionately end up on my desk.
A lot of my work is picking up the pieces when the wheels fall off, and they fall off for a variety of reasons. Sometimes it’s a result of simple inattention, sometimes the product is working the way it’s supposed to but the policy owner never understood it enough to realize there was downside and sometimes it’s a result of misrepresentation or outright fraud. Many times, projections were too optimistic to be realistic and, given the complexity of modern products, this wasn’t apparent to consumers. Sometimes those on the sales side didn’t even understand what realistic outcomes looked like, and sometimes they did but showed maximum assumptions because more attractive projections are easier to sell.
Don’t Just Sign on the Dotted Line
I’ve seen too many situations in which the policy owner has no recourse, even in situations with much deleterious circumstantial evidence, because once clients sign the paperwork, they’re often stuck. Unless there’s supporting documentation, such as an email conversation, the situation involves clear and provable fraud, such as forgery, or there’s abundant evidence that it was an inappropriate transaction, the signatures become nails in the coffin for the situations in which someone has been taken advantage of.
The story could be that the agent was objectively mistaken, could simply be overly optimistic or could be knowingly and willfully lying but it doesn’t matter if the paperwork is signed. If things fall apart later, the insurance carrier will simply produce the signatures on the disclaimer pages and walk away. I see this all the time. Insurance companies that flood the market with advertising about being there for their clients, winning ethics awards, emphasizing relationships and family values and all of the other nauseating feelgoodery nonsense will turn on your client and fight like caged animals in a heartbeat. That company your client has a warm and fuzzy feeling about? Has the client ever crossed them? Trust me, much of the marketing is a facade. The internal workings of the product development teams, the sales and marketing forces and the legal defense department will tell you what a carrier is really about. And yes, this includes the biggest, most recognized and well respected companies in the market.
Is this a reason for your client to not do business with them? Absolutely not. After all, you take those insurance carriers off the table who change their tune when things go wrong and you’d be hard pressed to find anyone to do business with. Is it a reason to avoid insurance? Definitely no. Insurance provides protections and planning opportunities not available in any other product. Does your client move forward on a hope and a prayer? No. That would be irresponsible. So what’s there to do?
Clients Should Create Their Own Disclaimers
Advise your clients to create their own disclaimers, in plain English, that are universally understood and that have black and white answers. The paperwork policy owners sign off on isn’t for consumer protection. I repeat, if your clients think the signed ledgers, applications and so on are for their benefit, even though they may be required by regulators in the name of consumer protectionism, they’re sorely mistaken. I can’t recall one single time when I pulled paperwork out of a file and used it for proof against an insurance company to benefit a policy owner. But I’ve seen the insurance companies produce the same paperwork over and over again to turn their backs on policy owners.
I’m experienced and aware enough to realize that most he said/she said situations are honest misunderstandings, and policy owners are notorious for not listening and having selective recall. In fact, my guess is that most times, the insurance company is right in fighting back. It can’t roll over for everyone who doesn’t get what they want or didn’t understand the deal. But it also doesn’t winnow the wheat from the chaff; it doggedly attacks everything. The attorneys it employs have a job to minimize losses, and they get zealous about it.
Be Willing to Walk
Numerous policy owners have worked with me to craft their own closing documents for signature by agents. It doesn’t really have to be that complicated or technical. It mostly has to be a summation of the facts as the policy owner understands them, signed off by the agent. It might not be much of a surprise that on a number of occasions, when presented with such a document, the agent hems and haws a bit and won’t sign. “Well, Mr. Client, you’ve misunderstood something” is a common comeback. I’ll suggest that often a client may very well have misunderstood something and this is a great time to “un-misunderstand.” I’ll also suggest that often it’s the agent who has mis-explained something. Regardless, if an agent won’t sign your client’s disclaimer or tells you the insurance company won’t let him sign it, don’t move forward. Maybe the wording technically needs to be changed up to make it more formally accurate but something assuredly can be crafted for there to be a meeting of the minds.
There are proposed transactions that won’t go through when this process highlights previously unknown details. I won a couple million for a client who didn’t even know he was a victim of fraud when I found a smoking gun in an email conversation. The problem is that the more ne’er do well agents are aware enough to not put things in writing just so this doesn’t come back to bite them. That’s why it’s your client’s job to force the issue, but they need assistance.
“Lying through omission” is a term you’re likely familiar with. There doesn’t have to be outright lying for misrepresentation to be involved. In fact, I’ll suggest this is more common. Throwing less than full information out there and letting it hang so a prospective policy owner comes to his own (mistaken) conclusion results in the same end.
Wouldn’t it be simple to put together questions that would root out any misunderstanding, inaccuracies or lies? Try this; “My life insurance policy is guaranteed for life.” Maybe it has to be more like “This policy has a guaranteed $1 million death benefit for life if I pay the premiums per the contract and don’t pull money out or take loans against the policy.” For the guy whose policy wasn’t actually built to last for life but was going to lapse at age 85, this could be pretty powerful if things fell apart.
If it was insinuated that your client’s Northwestern Mutual policy would earn the dividend rate on the premiums, (let alone the often referenced higher tax equivalent rate), then stating that in writing shouldn’t be an issue. My contention is that the agent won’t sign, and this will kick off a larger conversation. In the end, your client will realize that what he thought to be true is far from fact, and it’ll take a decade or more for his cash value to even equal his cumulative premiums and even many years down the line his internal rate of return on premium to cash value won’t be close to the stated dividend rate. Wouldn’t that be nice to know now rather than having someone like me having to tell him years from now?
“When in doubt, write it out” should be the mantra. Document everything and keep it. Get explanations through email. Follow up phone calls and in person meetings with emails and insist on written replies. There are innumerable situations in which recourse would have been on the table if documentation existed. Remember, the documentation that will exist without your additional mandate is largely documentation against you, not for you.
Finally, what’s very important to understand is that your clients don’t know what they don’t know. An expert can help in creating consumer friendly documentation and reference contractual issues and real world problems and common misunderstandings that the client has no idea even exist. If you understood the internal workings of the insurance companies then you’d realize there aren’t many more vulnerable constituencies than a life insurance policy owner.
Life insurance is one of the most complicated things that most people think is simple. A belief that retaining a consumer advocate isn’t necessary because of perceived simplicity or carrier reputation would be a mistake.
Bill Boersma is a CLU, AEP and LIC. He is the founder and principal of OC Consulting Group. More information can be found at www.OC-LIC.com, www.BillBoersmaOnLifeInsurance.info, www.XpertLifeInsAdvice.com or email at [email protected].