Today we're going to talk about regulation. Now, we're never in favor of MORE regulation…let's be clear on that. But, we do think that the life insurance industry needs to do a better job of policing itself.
If we don't, regulators will intervene and that won't be pretty for anyone. It's a bit of an anomaly in the financial services world to have products that aren't subject to any standard of suitability.
Annuities have a large degree of suitability guidelines to follow when it comes to the appropriateness of the sale. The securities industry has even more. Life insurance has none. And we mean NONE.
You can send a regulator into a tizzy by selling an annuity with a long surrender charge to an elderly individual, and you can get a compliance officer to go nuts on a equity mutual fund sold to an individual with a stated short term time horizon or someone who lists “preservation of capital” as their primary investment objective.
But you can do pretty much whatever you want when it comes to life insurance.
This means, the protections that stop unscrupulous salespeople when it comes to annuity and securities sales is non-existent when it comes to life insurance sales.
And we’ve seen many examples of bad life insurance sales (those with a death benefit focus primarily) for people who wanted and intended to buy a policy that would focus on cash accumulation.
There should be a change to this. Life insurance applications that state cash accumulation or retirement income as a primary objective goal should have a requirement regarding proper design with paid-up additions or guideline funded UL, but to-date no such requirement exists.
This means that you can plow a lot of money into a really bad policy, and there is very little that any regulator will do to help you when you realize that you're policy was not designed to suit your intended goal. We know this from personal experience as we've tried to have regulators intervene to force an insurance company to do what they should do and essentially we've gotten no where.
The NAIC offers no guidance on this issue. They act as if it doesn’t even exist.
But there are plenty of people out there buying whole life and universal life policies for the cash accumulation and retirement planning purposes and being sold policies that do not adequately satisfy the intention of the policy owner.
For now, discretion is key among consumers. And we’d strongly encourage you to make your purchase through a broker that specializes in this area and has a track record for doing the right thing.