Poll: Which Legal Standard of Care Governs Most Life Insurance Transactions?

Which legal standard of care governs most life insurance transactions?

  • The Fiduciary Standard

    Votes: 0 0.0%
  • The Suitability Standard

    Votes: 6 85.7%
  • The Golden Rule

    Votes: 0 0.0%
  • No Standard (Buyer Beware)

    Votes: 1 14.3%

  • Total voters
    7
Interestingly divisive question to ask here. Great way to showcase that YOU take a "higher fiduciary approach" while the rest of us must be scum to follow the "if I can get away with it, I'll do it" road.

Keep in mind that it's the COMPANIES that are obligated to a certain standard and they use the APPLICATION to determine if the coverage makes sense. That's why they publish financial underwriting guidelines for their agents.

Well, legally, I'm obligated to a suitability standard... but I also hold a ChFC designation. That designation has a professional pledge:

“In all my professional relationships, I pledge myself to the following rule of ethical conduct: I shall, in light of all conditions surrounding those I serve, which I shall make every conscientious effort to ascertain and understand, render that service which, in the same circumstances, I would apply to myself.”

ChFC® - The Highest Standard of Knowledge and Trust

I don't know what you call that standard. It's not a low "suitability" standard that says that "if I can get away with it, I can sell it." It's also not necessarily a "fiduciary standard". I suppose I could call it a Professional Standard... and that's what I provide.

And no, you don't have to have a designation to be held to a higher standard. It's all in how you promote and market yourself.

----------

BTW, LIFE INSURANCE has not yet truly been addressed by the DOL. The DOL ruling PRIMARILY applies to qualified retirement account funds.

However, that doesn't mean that it isn't impacted at all.
What About Life Insurance In The Dol

----------

I wonder what legal standard is required for a bank checking account?

Or disability insurance?

Or to sell a car?

Or to sell a house?

----------

Permanent life insurance is a WANT product. Therefore, the major consideration is whether they can QUALIFY and PAY for it in the first place.

Life insurance is a tool, that is only as good as the agent making the recommendation, as well as the dedicated agent that is committed to ongoing reviews with their policy holders.

Since there is no risk of loss, unless they don't pay premiums, or their contracts don't earn enough to sustain itself... there is no real need for such a standard when selling life insurance.

However, with securities, you have accredited investors as designated by the SEC, and investments that may be suitable for them, would NOT be suitable for anyone else. Suitability really has to do with risk tolerance as well as costs, risks, and returns for a given investment time period. Someone with a 1-3 year time frame should not be sold a variable annuity. They should be sold some C-shares in a conservative, to a growth-income portfolio - in an effort to tame the volatility.

Apples and oranges in regards to insurance and securities (including variable contracts).
 
Interestingly divisive question to ask here. Great way to showcase that YOU take a "higher fiduciary approach" while the rest of us must be scum to follow the "if I can get away with it, I'll do it" road.

Not the intent at all. Although, I can see how you'd get there pretty quickly. I am genuinely interested in how many professionals know the answer to this. And in helping those who want to know the difference.

You make a lot of great points, as usual, DHK. I certainly agree with you that, legal standards aside, many life insurance professionals put the client first. I have no reason to doubt you are among them.

Peace.
 
It's not a question that is relevant to the daily activities of an insurance agent. I wasted time reading it and find myself wasting more time responding. Not sure how many agents want to read about topics that will neither help them increase their sales nor help them better serve their clients. With over 25 years in the financial services I've never been presented with such irrelevant issues as the OP presents in this forum. I wish such nonsensical posts would stop because I can't help but to read these things, and it's wasting my time.

Perhaps I'm wrong and this is the future of life insurance sales. Hmmm.... I don't think so.
 
It's not a question that is relevant to the daily activities of an insurance agent. I wasted time reading it and find myself wasting more time responding. Not sure how many agents want to read about topics that will neither help them increase their sales nor help them better serve their clients. With over 25 years in the financial services I've never been presented with such irrelevant issues as the OP presents in this forum. I wish such nonsensical posts would stop because I can't help but to read these things, and it's wasting my time.

Perhaps I'm wrong and this is the future of life insurance sales. Hmmm.... I don't think so.

Issues of professional liability are highly relevant to our day to day activities. Were it not so, you would not have been required to purchase E&O insurance for all of your 25 years.

That said, I certainly concede that the poll/topic won't help you close a deal, today.

If you find that my posts are of no value to you, I'm sure there is a mechanism to ignore them. Most message boards have that capability. I'm sure this one is no different.

----------

ChFC® - The Highest Standard of Knowledge and Trust

I don't know what you call that standard. It's not a low "suitability" standard that says that "if I can get away with it, I can sell it." It's also not necessarily a "fiduciary standard". I suppose I could call it a Professional Standard... and that's what I provide.

Also, for the record, I think both that 1) relatively speaking the ChFC code is commendable and 2) that it (the code) represents a distinct marketing advantage for those who hold the designation, like you.

It seems to me that the information I've provided in this post, if you think about it like I did when I first encountered it myself, might make you more passionate about offering your services to the public: you bring something substantive to the equation that most agents do not.

So, you can take this like I'm trying to "one-up" you. Or you can take it as a positive. I would think you, more so than most on this board, would have reason to see the brighter side of the picture.

As for the rest of the board, I think the challenge is to raise the bar of our commitments to do what is right. And discover what behavior changes accompany that raised bar.

If that makes me the enemy, so be it.

Truthfully, it infuriates me that the life insurance industry has so many agents brain-washed into defending a standard of care with which the vast majority of those agents 1) do not agree in principal, and 2) do not abide by in practice.

Permanent life insurance is a WANT product. Therefore, the major consideration is whether they can QUALIFY and PAY for it in the first place.

Life insurance is a tool, that is only as good as the agent making the recommendation, as well as the dedicated agent that is committed to ongoing reviews with their policy holders.

Since there is no risk of loss, unless they don't pay premiums, or their contracts don't earn enough to sustain itself... there is no real need for such a standard when selling life insurance.

Are you saying there is no need for the suitability standard to protect consumers buying life insurance? That is an interesting thought I'd not considered.
 
I think there needs to be a viable reason for the purchase of life insurance. The primary reason SHOULD be the death benefit. Granted, underwriting guidelines, human economic life values, and current low interest rates make it easy to justify a large death benefit.

Then it comes down to this: Does the client want it? Can the qualify for it? Can they pay for it? How long do they want it? How long do they want to pay for it? How much can they afford? etc.

Take this article and the comments regarding the lawsuit against an advisor selling VULs to physicians:

ProducersWeb - Life - New lawsuit against agent for selling a VUL

In this instance, these policies were sold to people that had no apparent need for the death benefits. Certainly makes it more difficult to justify the ongoing costs associated with a permanent policy.

If you don't have beneficiaries or dependents (including charitable or business endeavors), or non-forgivable loans at death... what's the point of buying life insurance?

Everything after the death benefit needs... are secondary, but important to figure out how you can best maximize the use of your policy during your life. But if you have no death benefit need... I don't see an ethical sale here.

Yes, you can take advantage of additional tax-deferred values over and above qualified plan and IRA contributions... but you can do the same thing with an annuity (albeit LIFO taxation versus FIFO and other tax consequences that hinder liquidity).


However, we ARE held to some kind of standard. After all, we are LICENSED and therefore RESPONSIBLE for our actions and recommendations as we sell insurance. If there was NO STANDARD at all, then licensing would not be required.

Licensing, as you know, does not guarantee competence. It does guarantee that you can be held liable for your actions and recommendations. It does show that you have proven, on some minimal level, that you are worthy of trust through background checks, examination, credit worthiness (on some level), etc.
 
Issues of professional liability are highly relevant to our day to day activities. Were it not so, you would not have been required to purchase E&O insurance for all of your 25 years. That said, I certainly concede that the poll/topic won't help you close a deal, today. If you find that my posts are of no value to you, I'm sure there is a mechanism to ignore them. Most message boards have that capability.]

I won't block you as you seem like an intelligent person and you could provide some decent info.

25 years ago, agents didn't carry E&O. It could be that some did but it wasn't the norm.
 
For non-registered products, absent a special relationship or some statutory suitability requirement (e.g., replacement), life insurance agents are generally held to a "duty to procure" standard.
 
Back
Top