Fact CheckedOk, we’ve all heard about life insurance scams.
It’s the white elephant in the room when I tell people what I do.
Too many people have a story about the agent who sold them a product they didn’t need…
…or steered them toward purchasing a far too expensive product for their budget.
There are even stories about agents bilking elderly people – ugh.
Are these simply myths circulating, or is something more sinister to be said about the “shady” side of the life insurance industry?
Find out more now!
Let’s Take a Look at the Agents
Rumors and horror stories about life insurance scams abound.
Sadly, this industry has a reputation for taking advantage of unsuspecting customers. I think there are several reasons for this, which I’ll discuss below.
Hopefully, this allays any concerns you have about this vital industry.
Don’t get me wrong, there are some seriously rotten apples in the bunch – but you shouldn’t let that spoil the bushel. More often than not, your life insurance agent is on the up and down.
However, there are some things you should look for when selecting the person who creates your coverage.
So, let’s dig in and explore common issues that crop up when you purchase life insurance.
5 Tips To Get the BEST Agent!
1. Avoid Tied or Captive Agents
This has nothing to do with life insurance scams, but it could leave you with a sour taste if you aren’t familiar with the life insurance process.
There’s a big difference between a tied agent and an independent agent. I’m an independent agent who can access coverage from Canada’s best life insurance companies.
When I speak to you, I perform a needs analysis, review your medical and financial history, and then sift through all the potential insurers to pinpoint the company that will give you the best deal.
A tied or captive agent works for ONE life insurance company and sells their products exclusively.
When you call, they direct you to the company’s best product for your situation. This is great—unless their products don’t suit you, and that’s often the case.
You Better Shop Around!
The key to obtaining the best possible rate is shopping around, which is EXACTLY what an independent life insurance agent does for you.
Most consumers are not well-versed in the life insurance industry and don’t know all the ins and outs. Why should they? That’s our job.
Unfortunately, this all comes to a head when you make a purchase based solely on name recognition.
2. Too Many Agents Rely On Friends & Family
Don’t get me wrong; I help friends and family that ask for assistance.
There is absolutely NOTHING wrong with this. However, there’s a line. I’m sure you’re familiar with people who rely on loved ones as their primary sales pipeline.
You know who they are: the Facebook and Instagram spammers who show up at dinner with scary life insurance stories.
Sadly, this gives life insurance a bad name. High-pressure sales tactics don’t work, and in fact, they drive people away.
In my experience, letting people come to me helps. Sure, my friends and family know what I do, but I concentrate my efforts on people in the life insurance market.
3. Commission Breath – Whole Life Insurance Scam
Yep, it happens. Some predatory life insurance agents direct you to products that cost a bomb because they are rewarded with high commissions.
I would like to think that most agents do not do this and always select the products that best meet their clients’ needs, but that’s not always the case.
This is particularly true regarding permanent life insurance products like whole life insurance. Whole life insurance is a perfect tool and a big part of the life insurance arsenal. But it isn’t for everyone.
In my personal experience, term life insurance works for most people most of the time.
Whole Life Insurance Isn’t for the Average Person
90% of the clients who come to see me are looking for income replacement should they die prematurely.
The need is temporary. Term life insurance fulfills this goal and is super affordable. Especially if you buy it when you’re young and healthy.
So, term is the way to go for someone in their 30s watching their pennies and looking to attain this goal. I would rarely push them toward a permanent policy UNLESS they want life coverage, and even then, there are options to discuss.
Whole life is for people with an estate or business interests to protect or who need to create a tax shelter for excess income.
In a nutshell, it works well for those who have expendable funds and want coverage until they die or are looking to accumulate funds…
Final Expense Policies
..but there is an exception – final expense policies. These policies rock for those wanting to cover their funeral, and the premiums are affordable.
So why would an agent push their client toward a whole life policy if they don’t need it?
Commissions.
They pay much more money, so there is a financial incentive.
That’s why it’s essential to choose your independent agent wisely. You want someone motivated by ethics, not just their bottom line.
4. Pushing More Than You Need!
This does happen.
Some agents push you to buy more coverage than you need. It’s easier for them not to explore all the money-saving options.
If your independent agent doesn’t do a thorough needs analysis or speak to you about ways to save some cash, get a second opinion.
There are many different tactics, like layering coverage, that will save you a bomb in the long run. A good agent knows all about this and helps you find the most affordable policy with the most comprehensive coverage.
Oh, and buyer beware: that doesn’t mean you should cheap out. Being underinsured isn’t an option either.
Remember, if you have a great life insurance agent, you’re a client for life. As your circumstances change, so do your life insurance needs. This means updating your coverage when you need to.
5. Inexperience or Burn Out
Yep, it happens. Some predatory life insurance agents direct you to products that cost a bomb because they are rewarded with high commissions.
I would like to think that most agents do not do this and always select the products that best meet their clients’ needs, but that’s not always the case.
This is particularly true for permanent life insurance products like whole life insurance, which is a very good tool and a big part of the life insurance arsenal.
But it isn’t for everyone. In my personal experience, term life insurance works for most people most of the time.
Your agent should love what they do and have a solid network to consult if they don’t know the answers.
Life insurance is a highly complex business. Finding a knowledgeable agent who enjoys the planning side of this business is essential. Sure, anyone can sell you a life insurance policy, but it’s way more involved than that.
Make Sure You Get an Agent That Loves What They Do!
A fantastic agent will go through not only your CURRENT personal circumstances but will also review your goals.
Remember, this is a long-term commitment. Avoid agents with little to no experience and don’t have a network to consult when they need input.
At Policy Architects, we have several specialists we can speak to if your issue falls outside our scope. Knowing when to get help is just part of the business.
It would be best to avoid agents who think they know it all and aren’t willing to think outside the box. Some oldtimers have a hard time with change and being flexible. Find someone always learning about cutting-edge ways to save you a few dollars.
Lastly, a great life insurance agent will take the energy and time to listen to you and learn about your needs and concerns.
They also explain things in easy-to-understand language. If you encounter an advisor who uses a lot of jargon, don’t walk; run the other way!
Let’s Check Out Some Clients
Life insurance scams aren’t only instigated by agents. Policyholders also occasionally try to pull a fast one. Stretching the truth to get better rates is one of the main ways people do this.
A little white lie is considered fraud in the life insurance industry…
…and fraud is a criminal offense.
Insurers must insulate themselves from this behavior, or they will go out of business. So, if you’re tempted to withhold information or lie on your application to get a better rating, DON’T do it!
If the life insurance company even gets a whiff that you have been less than 100% transparent, they will deny your beneficiary’s claim.
Two-Year Contestability Period
After you purchase your life insurance policy, a 2-year contestability period goes into effect.
If you pass away during this period, the insurer can and will likely investigate the claim. If you misrepresented any medical issues you have, and they’re revealed, the life insurance company would NOT pay out the claim.
….OK, well, two years have passed, and I’m in the clear!
No, you’re not.
There is no expiry date for life insurance fraud investigations. Whatever you do, do not be tempted to lie on your life insurance application.
The potential savings are not worth it, and you won’t fool the insurers. They’re great at figuring things out—this is their job.
Life Insurance Scams: The Insurance Companies
Another question people have is whether or not life insurance companies pay out. Yes, they do. Thankfully, this is a highly regulated industry, so there is little room for life insurance companies to dodge their responsibilities.
While insurers investigate claims they feel are fraudulent and occasionally push the envelope, claims are generally honored without a hitch.
Fear not if you’re concerned that your insurer will go out of business and your protection will be wiped out.
Canadian policyholders are protected by Assuris, a not-for-profit organization that operates independently to protect policyholders from this.
You can click on assuris.com for more information.
Beneficiaries & How This Can Go Wrong
Although life insurance companies DO pay out their claims, there’s one slight hitch your family can run into.
Keep your beneficiary information up to date. If your beneficiary dies or cannot be located, the benefits will be subject to probate.
Make sure all addresses and contact information are current. The life insurance company doesn’t have to do much to track down your beneficiary, so the benefits may go unclaimed indefinitely.
Hmmmmmm.
“The whole point of a term life insurance policy is to leave money for loved ones after your death. To properly do this, you’ll want to ensure you accurately list your beneficiaries on the policy in question. Make sure to triple-check the spelling of names, contact information, Social Security numbers and other identifying information so your beneficiaries can easily submit a claim after you die.”
Check List to Avoid Life Insurance Scams
Always Use an Independent Life Insurance Agent
At Policy Architects, we have access to the top insurance companies in Canada. This means we find the most comprehensive coverage at affordable rates. Remember, not all life insurance companies are created equal. Some are more lenient than others regarding medical and lifestyle issues, and the savings can be in the tens of thousands of dollars.
Use An Experienced Agent & Someone Who Has Additional Resources
Experience is king. That said, life insurance is a VERY complicated industry, and nobody knows everything.
We all excel in our niches. I have an excellent network of experts to access when I need help.
Any agent worth their salt will have the same. If your agent is afraid to say, “I don’t know – let me look into that!”, you should give them a miss. There is no such thing as being “all knowing”. That’s usually a red flag.
Don’t Buy Life Insurance Based Solely on Name Recognition
Name recognition isn’t all it’s cracked up to be. Sure, there are long-standing companies that are very deserving of their stellar reputations. But name recognition is also the result of a GREAT marketing team and lots of money to get the name out there. This doesn’t mean they’re the right company for you. That’s why you need to use an independent agent to determine which one suits your needs. Remember, using a tied agent could cost you a bomb in the end.
To Avoid Life Insurance Scams Do Your Homework – Check Out the Insurers Financial Rating
Do your homework if you’re looking for a life insurance company with a good foundation.
Financial ratings give a basic idea of a company’s economic management. This information is readily available online.
Life insurance is an essential long-term investment, so be sure you’re happy with your selection before signing the dotted line.
To Avoid Life Insurance Scams, Get Real About Your Financial Needs BEFORE Your Meeting
Sit down and crunch some numbers before you meet with your agent.
This will give you a better idea of your needs. The typical rule is that your life insurance coverage should be 7 – 10 times your salary.
If you have young kids, 10-15 times your salary. So if an agent comes over and tries to sell you coverage over and above this figure without justifying it, you may be dealing with someone who either doesn’t know what they are doing or is dishonest.
Please NOTE:
NOTE* Many underestimate how much coverage they need to protect their family’s lifestyle.
For example, you’re 40, earning $80k annually, and expecting to retire around age 65. If you do the math, that’s $2 million of income, and your family won’t see if something happens to you tomorrow. So $1 million of protection is the very least you should have!
Stay Away From Permanent Insurance Unless You Need It
Permanent life insurance is a great tool…
….IF you need it. The thing is, term life insurance works best for most people. If you’re looking for the most affordable coverage to protect your family for years, this is the way to go because it’s flexible and inexpensive.
Don’t get me wrong, I love permanent coverage – for the right situations.
Don’t let an agent with commission breath lead you astray.
Remember, If You Get a Bad Vibe, Get a Second Opinion
Trust your gut. If you’re working with an agent that makes you uncomfortable or scammed, get a second opinion.
There’s no reason to rush into a purchase. Doubts are red flags. Stop, get more information, and only sign on the dotted line when comfortable.
To Avoid Life Insurance Scams, Check Out Reviews
Google offers a lot of information about the people we deal with.
Why not check out the reviews for the agent you’re using? If you see numerous complaints or even one terrible review that rings true, move to another resource.
I will, however, add one caveat. The life insurance process is fraught with stress. Death isn’t something people want to talk about or deal with.
People who feel they’ve had a bad experience are far more likely to write a review than those with a smooth transaction.
Life Insurance companies and agents are at the whim of customers who may or may not be 100% ethical or rational. So, look at the reviews critically. If you see 30 great reviews and a sudden ding, you may want to take it with a grain of salt.
Why You Should Use Policy Architects
I’m unsure what happened to people’s perceptions of life insurance scams.
However, I can see some holes in the industry that make people feel frustrated.
First and foremost, I want clients to feel like they are in control of their life insurance decisions.
You don’t need to blindly rely on the advice of a tied agent that will only promote their products. Nor do you have to listen to an independent agent trying to get you to purchase a policy you can’t afford.
But don’t let any of this dissuade you from buying life insurance. It’s one of the best purchases you ever make. If you have dependents and debt, your loved ones will thank you for planning.
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