When shopping for policies, how do you know what policy is right for you? Is it suitable for you? The complexity of the question will depend on if you have an advisor or are doing it alone. If you have an advisor, how much knowledge do they have about the subject, what state you reside in and how comfortable you are with the methods and resources you’re presented with? Basically, it’s based on individual basis.
When it comes to suitability and life insurance, there are no definite answers for anyone – professional advisors included. The sale of variable insurance products falls under the realm of FINRA/SEC. In looking at the suitability regulations from the look of life insurance instead of securities regulations, there are numerous differences.
Suitability regulations already in place for registered products are variations of any and/or all investment products’ regulations. Therefore, they’re not always valid to life insurance policies. The rules of state suitability exist in a minute number of states and differ in terms of the following:
The amount of life insurance sales that have non-registered products is low for life insurance. There about 30 states that have suitability rules for annuities, which mean suitability rules for life insurance may be in the near future.
There is one mantra echoed through the life insurance industry: it’s not bought, it’s sold. Carriers taught this mantra and passed it from one agent to another agent. Agents regarded life insurance as being a unique product – a one-size fits all miracle potion that cures you of whatever troubles you.
Life insurance isn’t considered to be a financial plan. And, for that reason, it should be given merit for being a strength of its own. The reason many life insurance policies write up policies in the U.S. is because the industry has a entrusted interest in pushing high profit, high-commission whole-life insurance policies.
It’s imperative to get into the past of how field representatives determined what a person’s life insurance needs were. Agents worked on behalf of the company they are employed with. However, as time went on, these life insurance companies looked to separate themselves from the agents and claim to have no responsibilities to the abuses agents have done.
Suitability demands that brokers and agents completely understand what it is they’re selling. If not, they are not going to be able to provide a sensible recommendation. Agents were constantly asked to give out products that were similar to “black boxes”, meaning they had no idea what it was they were selling. Everything about it was a mystery:
• Mortality costs
• Overhead expenses
• Dividend determination
The change began with universal life, but was furthered with the introduction of the Illustration Questionnaire by the American Society of CLUs and ChFCs. Until then though, carriers and agents did not have any knowledge about the life insurance contracts. Therefore, until the NAIC Life Insurance Model Regulation was introduced in 1995, agents and brokers could show anything they deemed worthwhile to “themselves”. If you have more questions about policy itself or any other related products and calculations, you can always refer to west life insurance advice channel and get a quality service and information.