Due Diligence in Sales

Table of Contents

Chapter 1 - Agent Ethics		1
	“Suitable” defined	1
	Adequate Communication Skills	2
	Investment Vehicles	3
	Why is Ethical Conduct Necessary?	3
	Is it possible to teach ethical behavior?	4
	Psychological Egoism	5
	What is the scope of ethics?	7
	What does it take to be a moral person?	8
	Provide quality work & services	9
	Creating a legacy	9
	Example #1	11
	Example #2	11
	Example #3	12
	Example #4	13
	What are our responsibilities to other moral persons?	14
	Required Continuing Education	15
Chapter 2 - Ethical Client Contact		18
	Insurance Producer Qualifications	19
	Setting Appointments	20
	At the Door	21
	Adequately Explaining Policy Benefits & Limitations	23
	Minimizing misunderstandings	24
	Policy Replacement	25
	Product Misconceptions	27
	When Premiums Seem too High to the Consumer	28
	Client Signatures	29
	Keeping in Touch Following the Sale	29
	Commingling Insurance Funds	31
Chapter 3 - Ethical Product Selection		32
	Term Versus Cash Value Life Products	32
	Amount of Coverage	33
	What Length of Term Insurance?	33
	Permanent Life Insurance Policies	34
	Annuities	34
	Example	35
	Sales Practices	37
	Product Replacement	37
	Deceptive Sales Practices	38
	Full Disclosure	38
	Product Knowledge	38
	Identifying Suitability Issues	38
	It is Not a Liquidity Issue but Rather a Suitability Issue	39
	A Comprehensive Financial Plan	40
	Laddering investments	41
	Example	41
	Basic Information Requirements	42
Chapter 4 - Product Costs		43
	Adverse Selection	44
	Purpose of the Insurance	47
	Risk Categories	47
	Life Insurance Death Proceeds	48
	The Terms “Insurance” and “Assurance”	48
	Term Insurance	48
	Permanent Life Insurance	49
	Whole Life Insurance	49
	Universal Life Insurance	49
	Life Insurance Surrender Charges	51
	Taxation	53
	Viatical Settlements	53
	Annuity Costs	54
	Annual Variable Annuity Costs	54
	Less Risk – Lower Yields	55
	No-Load & Front Load Commissions	55
	Mortality Fees	55
	Investment Advisory Fees	56
	Implicit Interest Rate (i%)	56
	Delaying Annuitization when Interest Rates are Low	57
	Equity Indexed Annuity Costs	58
	Participation Rates	58
	Averaging	59
	Caps	59
	Spreads, Margins, and Administrative Fees	60
	Annuity Surrender Values and Penalties	60
	Education Funding	61
	Ethical Responsibility	61
Chapter 5 - The Application		63
	Need for Insurance	64
	Completing the Application	65
	Sample Application	66
	Agent’s or Broker’s Report	70
	Temporary Life Insurance Agreement and Receipt	72
	Fair Credit Reporting Act Disclosure Statement	73
	Fair Credit Reporting Act Disclosure Statement Sample	75
	Consumer Rights	76
	Read and Understand Your Policy	78
Chapter 6 - Beneficiary Designations		79
	Spendthrift Clauses	82
	Competence Required	83
	Minors as Beneficiaries	83
	Primary Beneficiaries	83
	Community Property States	84
	Secondary/Contingent Beneficiaries	85
	Naming Multiple Beneficiaries	85
	Beneficiary Changes	86
	Divorce	87
	Beneficiary Payout	88
	Updating Beneficiary Designations	89
	Example	89
	Insurable Interest	90
	A Company’s Insurable Interest	91
Chapter 7 - The Issued Product		93
	The Insurer, The Insured, Insurance Contract	93
	Underwriting & Rating	94
	Financial Institutions	95
	A Public Interest	95
	Annuities	96
	Joint and Survivorship Annuities	97
	Guaranteed and Life-Time-Certain Annuities	97
	Level Annuities	98
	Capital-Back Guaranteed Annuities	98
	Escalating Annuities	98
	Inflation-Linked Annuities	99
	Enhanced Annuities	99
	Annuity Terminology	99
	Choosing Between Fixed and Variable Annuities	104
	Lifetime versus Term Annuity Payout	104
	Annuitization Options	105
	Financial Strength of the Insurer	107
	Premium Protection	107
	Cost of Living Protection	107
	Principal Protection	107
	Tax Efficiency	108
	Supplementing Other Retirement Income	108
	Reasons to Buy an Annuity	108
	Reasons to Avoid Buying Annuities	109
	Making the Right Annuity Choices	111
	Fixed Rate Annuities	112
	How Fixed Period Annuities Work	112
	Variable Annuities	114
	Funding Variable Annuities	115
	Variable Annuity Fees	115
	Variable Annuity Death Benefits	115
	Surrender Fees	115
	Gains in Variable Annuities are Taxed	116
	Equity-Indexed Annuities	116
	Determining Need for Life Insurance	116
	Policy Provisions	117
	The Insurance Contract	118
	Basic Instruments	118
	Policy Ownership	119
	Preventing Money Laundering Activities	119
	Terrorism Produces Insurer Risk	120
	Financial Action Task Force recommendations	120
	Legal Requirements Adopted	121
	Broker-Dealer Requirements	123
	Anti-Money Laundering (AML) Program Requirements	124
	Know Your Consumer (KYC)	126
	Compliance	127
	Suspicious Activity Reports Filing Requirements	127
	A Change in Thinking	128
	A Global Problem	129
	Covered Products	131
	Nine Identified Money Laundering (ML) Methods	132
	Money Laundering Indicators Not Unique to Insurance Products	135
	Policyholder Characteristics and Behaviors	136
	A Known Criminal or Criminal Associate or Relative	137
	Erratic or Abnormal Use of Policies	137
	High Premiums Compared to Verifiable Income	138
	Lack of Concern for Charges or Costs	138
	Undue Interest in Payout Options	138
	Repeated or Unusual Changes in Beneficiary Designations	139
	Insurance on Assets that Appear Inconsistent with Income	139
	Early or Suspicious Claims	139
	Product Characteristics and Maintenance	141
	Customer Due Diligence (CDD)	142
	Policy Features and Provisions	144
	Premiums	145
	Policy Options	145
	Nonforfeiture Options	145
	Dividend Options	145
	Settlement Options	146
	State Required Provisions	148
	Incontestability	148
	Misstatements in the Application	149
	Deferment Clause	149
	Nonforfeiture	150
	Loan Values	150
	Grace Periods and Reinstatement	151
	Allowed Policy Provisions	151
	Suicide	151
	Aviation	151
	War	152
	General Provisions	152
	Deduction of Indebtedness and Premium Refund	152
	Assignment	152
	Beneficiary Designations	153
	Policy Payments	153
	Cash Values	153
	Dividends	154
	Proceeds	154
	Special Clauses	155
	Contract Use	156
	Group Insurance Principles	156
	Eligible Groups	157
	Single Employer Groups	157
	Multiple Employer Trusts (MET)	157
	Unions, Associations, and Other Groups	157
	Creditor-Debtor Groups	158
	Group Underwriting Advantages	158
	Keeping Current with Business Needs	159
	The Informed Consumer	160
	Providing a Quote	160
	Key Person Insurance	162
	Buy-and-Sell Agreements	163
	The Key Person Principle	164
	Insurable Interest for Life Insurance	164
	Example	165
	Disability Insurance on Key Employees and Owners	166
	The Small Company’s Exposure	168
	Loss of the Small Business Owner	168
	Planning for Death or Disability	172
	Private Insurers	172
	Types of Coverage	173
	Property and Liability Insurance	173
	Government Insurance	174
	Voluntary Government Insurance	174
	Compulsory Government Insurance	174
	Mutual Companies	175
	Assessment Mutuals	175
	Non-Assessable Mutuals	178
	Conversions	178
	Reciprocal or Inter-Insurer Associations	178
	Stock and Mutual Underwriting	180
	Factory Mutuals	180
Chapter 8 - The Agent’s Role		182
	The Sale is Completed	183
	Policy Delivery	184
	Customer Service Representatives	185
	Types of Insurance Jobs	187
	Claim Denial	188
	Annual Coverage Reviews	190
	Reviewing Disability Coverage	193
	Group Disability Plans	195
	Short Term Disability or Long-Term Disability	195
	Individual Disability Benefits	196
	Reviewing Long-Term Care Insurance	196
	Yearly Client Contact	198

United Insurance Educators, Inc.

PO Box 1030

Eatonville, WA  98328

(253) 846-1155