Help Mitigate Life Insurance Fraud

February 6th, 2018 No comments

Three rules to remember for layering in a basic level of protections for your clients.

While there’s likely no way to ultimately ensure your clients won’t be victims of fraud, there are a few things to be done that may help prevent it, as well as assist in recovery efforts if they’re victims.

Recent Fraud Case

As usual, I get to thinking about this when a fraud case crosses my desk, which seems to be more often as I’m gaining a reputation for finding solutions. Recently, an advisor brought me a case in which a woman in her mid 70s fell victim to fraud by an agent. I won’t dive into the details; while on the surface it may appear to be a he said/she said situation, the facts of the case led me to clearly understand otherwise.

Without even hearing the other side of the story, I can be reasonably assured this woman is stating the truth based on the recounting of her goals, what she purportedly told the agent, what the agent said he would do, evidence of what he really did and my observation of behavior in the market for 25 years. After all, how often does one take a lifetime guaranteed whole life product and exchange it into a rated contract built to zero out in five years when the woman would be 80 years old? Lie was stacked upon lie until the entire thing collapsed.

Of course, by then the agent was long gone. I’m the first to understand a carrier can’t roll over on every complaint as everyone who was ever dissatisfied with the performance of their product or plan would go back and claim fraud or that it was an unsuitable transaction. However, I continue to be somewhat surprised at how hard some carriers are willing to fight what appear to be obvious cases, even with documentation.

Carrriers’ Line of Defense

The first line of defense of too many carriers is to stall or ignore and hope it goes away. I’m sure this is the first step because it’s likely very successful. The second line of defense is to pull out paperwork and produce the client’s signatures. This is one of the absurdities of regulation. In the name of “consumer protectionism,” paperwork and legalese are almost always constructed in a manner to protect the company, not the client, and the volume of it greatly serves to confound rather than to clarify.

Clients will usually sign whatever the agent puts in front of them and rarely look at it. Reasonable? Yes and no. Take for example, I have a real estate closing this week, and I know an enormous stack of paper requiring dozens of signatures will be put in front of me. Many of them are required only post-meltdown in the name of consumer protection while anyone with a brain understands this only makes it worse. If I tell them I want to read what I’m signing, they’ll likely laugh out loud and say, “not today you’re not!”

The case at hand is so egregious that I can’t even imagine how it got by compliance. Someone was clearly sleeping at the switch, or the agent twisted himself in knots lying about it to get it through. I’ve had legitimate cases created and approved by an entire team of advisors that a carrier wouldn’t approve because company lawyers were too afraid of the infinitesimal chance that someone might argue it wasn’t in the best interest of someone if the worst case scenario played out.

Basic Levels of Protection

Knowing that there will always be some bad apples, here are my rules for layering in a basic level of protections for your clients.

No. 1: When in doubt, write it out. Always put everything writing. I don’t care how innocuous the question might be, especially if it has to do with how the product or transaction at hand works or it’s risk parameters. Ask it through an email. My easiest wins are due to documentation.

I hear people say things all the time they would never put in writing. We’re probably all doing this ourselves at times, though we don’t have nefarious tendencies. Just the act of forcing things to be written out will often cause someone tempted to take a short cut or to outright bamboozle a client to think twice. Any bad guy is looking for an easy mark, and even those without criminal intent sometimes need to have their feet held to the fire. The most righteous of us behave differently when we know we’re being watched.

No. 2: What the heck, try Broker Check. Many, if not most, insurance agents nowadays are securities-licensed, so go to to do a Broker Check. FINRA is a national organization and will cover your rep wherever he’s operating in the United States. If the agent isn’t securities-licensed, most states should have a way to check through the insurance commissioner for any complaints on file.

In this situation, I quickly got on the FINRA website while on the phone with the advisor. Voilà! Multiple disclosures. Starting with misconduct in public office and a felony conviction with jail time back in the 1980s; we then move to more than one state with insurance actions against him in the 1990s to securities violations in the 2000s—multiple letters of complaint, unsuitable transactions, inappropriate replacements, forging client signatures, allowed to resign by one firm and then after moving to another suspended from the industry—settlements, fines, disgorgement.

Of course, I knew where to go and how to do it, but I timed how long it took me to sit down at my computer, enter the website, enter his name and see the results. Twenty seconds flat! Let’s say it takes you or your client even five minutes to figure it out, that’s not much effort to potentially be saved from a world of hurt.

As I wrote about last year, the biggest fraud case that I’ve been involved in, where I got my client a seven figure settlement, the rep’s Broker Check to this day is as clean as a whistle. I managed to paint him in a corner and accomplish for my client what I was charged to do without ever filing suit. That never did set well with me. Revenge by protecting others would have made it more satisfying.

On the other hand, I refer business to someone who has two actions against him. But I know his history in detail and throughly understand the nature of the complaints: one was the result of doing the objectively best thing for a client and in the other he was collateral damage (sometimes companies can be vindictive). The point here is that Broker Check can’t be categorically relied upon one way or another, but it’s one tool to consider.

No. 3: You’re no minion, get a second opinion. Fee-based or otherwise, an arm’s-length, objective review can be invaluable. Depending on only the person who monetarily benefits from a transaction will pan out okay many times, but it won’t every time.

It’s not just about avoiding fraud. Many transactions range from okay to great, and an objective consultant who’s not in the business to simply kill commission deals, like some unfortunately are, can be invaluable. Your babysitter or nanny isn’t likely to abuse your children and most people you employ won’t steal your jewelry or embezzle, nor are they drug addicts or sexual predators. If you never did a background check, you’d get away without problems most of the time.

For this particular case, any one of the three rules above would’ve likely been effective, and all three together would’ve certainly quashed the deal in its tracks.

Understanding Life Insurance Performance – Part 2

January 19th, 2018 1 comment

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Digging Into the Black Box of Life Insurance

December 19th, 2017 No comments

Referring to life insurance as a “black box” goes back a long way, but just because life insurance may seem like a black box to you or your clients doesn’t mean it has to be. Some people understand it. It may not be healthy to foster an “us versus them” mentality, but it’s most certainly not healthy to ignore reality. When individuals don’t understand something, they seek out an advocate to ensure they have the information they need to make decisions in their best interest. Life insurance shouldn’t be any different. For full post, click here…

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Rebalance Power Inequity in Life Insurance Industry

November 30th, 2017 No comments

In the news, we currently have a number of stories of bad behavior. Political shenanigans, sexual harassment, corporate malfeasance, gun violence, the media, etc. It doesn’t take much to understand what connects much of this. I’m thinking about power. Those with the power can take advantage of those without the power. It’s not complicated.

Think about a serial sexual harasser or a congressman or a corporation or the guy holding the gun or the talking head. They’re all in a position of power and, unfortunately, often go unchecked until another who gains power can level the playing field. For full post, click here…

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Are all discounts beneficial? – John Hancock Vitality Program

November 13th, 2017 No comments

Many readers may be aware of Hancock’s Vitality program. I’m not going to attempt to do the program justice but you can click here to read about it. The short story is that the program offers different levels of discounts on your clients’ life insurance premiums based on their healthy lifestyle as measured by a variety of metrics and activities. It also incorporates discounts from partner companies and allows your clients to earn a steep discount on an Apple Watch or a complimentary Fitbit to track healthy activities. For full post, click here…

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Understanding Life Insurance Performance – Part 1

October 31st, 2017 No comments
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Don’t Underrate Term Insurance

October 31st, 2017 1 comment

It can be a good, cheap solution for many clients.

A younger attorney asked me some time ago to get some term numbers for her clients. Her question was “Is this premium monthly or annual?” When I told her it was annual, her next comment was “Could you quote some term for me and my husband?”

Pretty much every statistic shows most people are meaningfully underinsured. Sure, this is easy to say when it’s someone else’s money you are spending, however, I don’t think most people understand just how cheap term insurance is. Yes, some people can’t get it, and some people just don’t have any money, but that isn’t the case in most situations. For full post, click here…

The Problem with Spreadsheeting and Commoditization

October 11th, 2017 No comments

Recently I was brought into a case by an estate-planning attorney who had relatively young clients who handed over an insurance policy and said “Tell us if this is good”.

The short story is that the policy was only a couple of years old, it was a guaranteed survivor universal life (UL) from a reputable carrier and it was doing fine. The pricing was now unduplicable, and if they keep paying the premiums on time, then the death benefit will assuredly be paid someday. For full post, click here…

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The Truth Behind Whole Life Premiums

September 20th, 2017 No comments

Last September, I wrote a response piece to a New York Times article titled “Skyrocketing Premiums.” I was taking issue with some aspects of the article, which was interesting and made some valid points, but wasn’t entirely accurate. As expected, I got some interesting responses.

They came in two flavors:

1 Though I was somewhat blaming carriers for some of the problems with underperforming and collapsing life insurance policies, I was also deflecting blame directed at carriers, which was unwarranted. In response, I received fervent notes about how wrong I was. This response further proved much of the ignorance in the market regarding how life insurance actually works.

2 The other response came from some agents who specialize in whole life (WL) policies, as opposed to universal life, variable life and indexed products. I often hear from this constituency that their products don’t have the problem of rising premiums because WL premiums are guaranteed. I feel sad for these agents for they’re either appallingly ignorant regarding the polices they sell or they very well know better but purposefully keep up the façade for sales and marketing purposes.

Here’s my disclaimer… WL isn’t bad. Not all WL works the same way. I don’t have anything against it. It can be a good tool when understood, properly implemented and well managed. I even own some. There! I’m not trying to dis WL. What I am going to do is tell the truth. For full post, click here…

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Success Story: Details of a Life Insurance Fraud Case

September 5th, 2017 1 comment

Details of a Life Insurance Fraud Case

Some success stories are more fun to share than others. This is one of them. Sometimes this work is so fun that I (almost) feel guilty getting paid for it.

I want to start with the premise that there is a difference between idiots and criminals. Some-times the end results don’t differ but the path taken varies widely. I deal with the results of a lot of “professionals” who don’t know what they are doing but, fortunately, I don’t deal with a lot of criminals. However, they exist.
Here’s my story. As a result of a piece I wrote, an accountant in the Chicago area called me asking for advice. He was trying to accomplish something for his client and it was within my ex-pertise so we agreed on a modest engagement and moved forward. For full post, click here…

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