Posts Tagged ‘life insurance’

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.

“Optimizing” Life Insurance

July 1st, 2015 No comments

I periodically peruse the web to see what other insurance professionals are writing about.  Sometimes I agree wholeheartedly and sometimes I just shake my head.

Recently I saw a piece where the author was warning about “Optimizing” an insurance portfolio.  I get exactly what he is saying.  His point is to beware of marketing and warn that a given advisor was likely promoting a specific idea.  I offer practically identical warnings regularly.  The subtext was that there is no objective “best” so how could one maximize or optimize planning.  This is true but something about it bothers me. Read more…

To Pay or Not To Pay

August 20th, 2012 No comments

A relationship manager at a bank called to tell me his client asked him if he should be paying the loan interest on his life insurance policy. Good question, but where does one start? I too often witness agents, advisors and policy owners go with a gut feeling rather than perform even a simple empirical analysis of the situation. Here is how I approached this. Read more…

Categories: Life Insurance Tags: ,

What Does “Policy Maturity” and Associated Terms Really Mean?

June 4th, 2012 1 comment

Lately I have been involved in a few situations where there was clearly a lack of understanding about the concept of Policy Maturity and what it means. This post will not attempt to be terribly technical nor an exhaustive history of the evolution of life insurance but rather a summary of what most advisors and policy owners need to know regarding Policy Maturity. Not understanding the basics can be the cause of significant distress and regret. Read more…

Taxation of Life Settlements

February 23rd, 2012 No comments

The life settlement market isn’t what it used to be but it’s not dead. We have negotiated a couple of life settlement transactions lately, so I have been reviewing IRS Revenue Rulings pertaining to gain. It’s been almost three years since the IRS provided guidance so I thought this would be a good time for a refresher.

Before these Rulings, Read more…

Life Insurance Premium Optimization

October 24th, 2011 1 comment

I continue to be amazed at the willingness of consumers in the market to put significant life insurance transactions in force with no outside analysis and no evident level of sophistication. Here is a very simple example.

Recently I was involved in some planning where the annual premium was $150,000 a year on a full pay basis for the desired death benefit. At least 99 out of 100 situations I get brought into involve a level premium scenario because when one hits the button on the computer, this is what comes out and little further thought or analysis is brought to the table.

In this situation we have a 77 year old individual and we played around with the premium flow. Read more…

Observations on Fee-Based Life Insurance Consulting

October 4th, 2011 No comments

As the founder and principal of Opportunity Concepts, LLC, a life insurance consulting and management practice, my days are filled working with policy owners and their advisors regarding many aspects of life insurance, from simple front-end, second opinions to in-depth, actuarially defensible analysis of portfolios of policies. This is the story of a “typical” engagement.

Clients and advisors seek me out for my fee-based approach to life insurance consulting. While there are great life insurance professionals who do a good job and bring tremendous value on a commission basis, some policy owners and advisors in the market have had experiences which leave them cynical. One answer is to pay a consultant for analysis and advice. Read more…

The Goodman Triangle

May 18th, 2011 No comments

I regularly get asked about the “Insurance Triangle”, what it is and how it plays into things.  This is a reference to the “Goodman Triangle” Goodman V. Commissioner, 156 F.2d 218

In this case Mrs. Goodman transferred five existing policies insuring her husband’s life to a Revocable life insurance trust.  Beneficiaries of the trust were her three children and her sister-in-law.  About a decade later her husband died and the trust became irrevocable.
Read more…

What Is IRC Section 101(j)?

April 1st, 2010 1 comment

I am writing about this 2006 law today because, from my perspective and through personal experience, I do not see very many insurance and professional advisors talking with their clients about this issue.  The potential downside in terms of unexpected Read more…

Life Insurance Pricing… Where is it going?

November 11th, 2009 No comments

It’s been widely understood that life insurance rates have been coming down since, well, forever. There was a point not too long ago where if an insured individual with a term insurance policy was willing to take an insurance physical and complete new paperwork every year, he could reduce his premium annually even though he was a year older and the new policy would last a year longer. In fact it was common for policy owners and agents who were on top of things to do Read more…