By Gissou Gotlieb, Field Suitability Compliance Officer
Life insurance seems to be a hot product these days due to both its classic and newly created features. While it is an important product to have in one’s portfolio, there are some considerations in selling the product compliantly. We’ll touch on a few of these considerations that are topical.
In recent years, product manufacturers have redesigned some products to help address the cost of care that some of our aging and ailing population may experience. One of these products is life insurance with benefits related to the cost of an illness or long term care. Among other things, when considering such products, it is important to understand how the product is designed and how the individual components will work independently and together. For example, how will the benefits related to an illness work and how if at all, will it impact the life insurance portion of the product.
One of the more important considerations is to ensure that a client understands they are purchasing a life insurance product and that they need the death benefit that it provides rather than just purchasing the product because they only need long-term care insurance. For example, if you were looking for a way to listen to music and were interested in purchasing a stereo system, some which could cost thousands of dollars, you would go to an audio store and look at stereo systems. If someone came along and showed you a smart phone that had music available and enabled you to listen to it anytime, anywhere for a fraction of the cost, would that be a good substitute? There is no right or wrong answer, it just depends on the individual situation. The key point is understanding that there are significant differences between owning a phone that can also play music in addition to doing many other things and owning an actual stereo system. In a similar way, it is important to have a need for the underlying product - life insurance - and to understand how it works while also understanding and benefiting from the other features of the product.
Another consideration in the sale of life insurance that is topical right now is the perception that the Department of Labor’s fiduciary rule does not impact the sale of life insurance. It is important to note that the rule applies to all advice given on qualified funds. Therefore, if the sale of a life insurance product involves premiums being funded by dollars distributed from a qualified plan, it can fall under the rule. Producers must ensure that if they advise on or are involved in the sale of life insurance products that use qualified funds for any portion of the sale that they understand the rule and ensure compliance.
If you have questions about how life insurance works or compliance considerations, please call our office.
Gissou Gotlieb | Field Suitability Compliance Officer
Ann Arbor Annuity Exchange
Ph: 800.321.3924 x134 | Dir: 734.786.6134
Ann Arbor Annuity Exchange and its representatives do not give tax or legal advice. Please consult your tax advisor or attorney.
Designed for Financial Professionals.