Life Insurance: Never Trust a Salesman
By Stephanie Overby
November 7, 1997
IMAGINE waking up one morning to discover you owe thousands of dollars in life insurance premiums when you thought your policy was paid off. That is what happened to Florida retirees who bought insurance from Metropolitan Life Insurance Co. And they're not the only ones. Over 30 insurers are currently under investigation for misleading sales practices, which may lead to charges reminiscent of those recently settled against Prudential Insurance Co. of America, the country's largest insurer, and John Hancock Mutual Life Insurance Co.
All the transgressions have to do with sales of permanent insurance policies -- those that last a lifetime and build up a cash value. So if you are shopping for insurance or own a permanent policy, here is how to protect yourself against unscrupulous brokers.
Beware of a Broker Selling You a Second Policy
Choose Your Agent Wisely
Finally, it's a good idea to choose an agent who sells more than just life insurance. "You're less likely to be a victim of unscrupulous sales practices if you utilize an agent who provides other types of insurance products, like homeowner's insurance and auto insurance," explains Todd Muller, assistant vice president of consumer affairs for the Independent Insurance Agents of America. "The theory is that if the agent is providing you with more than just one insurance product, he has a true vested interest in your well being."
Get It in Writing
Trust Your Instincts
Consider Term Life Insurance
A Swindler's Glossary
Churning: The agent persuades the policyholder to purchase a new, more expensive life insurance policy using the accumulated value of his old policy, generating a commission for the agent. The customer is told the switch will cost little or nothing, but it actually saps the value out of his old policy and can hit him with big premium bills later on.
Piggybacking: The agent offers the policyholder another life insurance policy free of charge or at a reduced cost, when the customer is actually paying the premium using dividends or loans from the older policy until it is depleted and lapses.
Vanishing premium: The agent tells the policyholder she will only have to pay premiums for a fixed number of years, at which point dividends from the policy will be enough to cover the costs. But interest rates drop and the premiums continue.
"Tax-deferred investment": The agent tells the customer he is making contributions to a tax-deferred college or retirement account when in fact the policyholder is actually just paying premiums on a plain old permanent life insurance policy.