Life insurance is complex
As a solution to people’s problems, life insurance is a complex, expensive contract between a big financial company and a retail client. Usually, a life insurance agent handles the arrangements from the initial proposal, to the application, the medical disclosures and the delivery of the policy. This article describes a few of the ways this relationship can go off the rails.
It all starts with professionalism
Life agents should be professionals. Unfortunately, many are not. The training requirements are minimal. Agents may be well educated, but the insurance regulators do not require this. Agents should thoroughly understand the products they sell. Unfortunately, many do not. Insurance companies create complex policies that combine insurance with investment. But they do not train their sales force to be able to analyze both the pros and the cons for each one. An agent who does not understand the products cannot compare them and offer their clients the right solution.
Cheapest is not best
Everyone wants to save money. But with life insurance, lowest cost is not always the best. Premiums may increase each year (yearly renewable term) which can make the policy unaffordable at exactly the time it is most needed. Policies that build up investment balances (whole life and universal life) may assume excellent investment returns that do not pan out. This may make the policy worthless at the time it is most needed. Agents should map out the progress of the policy at the time of application, in an illustration. Rosy illustrations can mislead a client into believing all will be well – when it isn’t.
Medical disclosure is very tricky
Insurers base their underwriting on the risk of a loss. In life insurance, the risk is of premature death. Insurers (through agents) require extensive medical disclosure. They ask questions that clients often do not understand. Agents should help, but they are paid on sales only. This puts them in a conflict of interest. Full disclosure may cancel the sale. Better for them that the client buys the policy and the claim is denied in the future – after the commission is earned.
Death benefits may be denied
If there is a problem with the medical disclosure, the insurer may (and likely will) deny the claim. This occurs after the death of the person whose life is insured – usually the applicant for insurance. It is too late to fix the records and make the disclosure. The life agent may have retired or moved away. Insurers often choose to deny a claim on arguable grounds. When they do, they do not return all the premiums paid on the policy. Because that is the choice – pay the benefit or return the premiums. They cannot have it both ways.
Do you have questions?
If you have questions about a life insurance policy or a claim for benefits, call us for a no-obligation consultation. 1-888-288-2033, ext. 234, or visit www.lifeclaimdenied.ca.