Most states require that annuity and life insurance sales be in the best interests of the purchaser. This is an expansion of the suitability rule. Annuities and life insurance policies pay high commissions relative to other investments. An agent cannot put his needs ahead of yours by selling you a high-commission policy that you do not necessarily need.
The agent must meet the following standards in most states: (i) Know the consumer’s financial situation, insurance needs and financial objectives; (ii) Understand the available recommendation options after making a reasonable
inquiry into options available to the agent; (iii) Have a reasonable basis to believe the recommended option effectively addresses the consumer’s financial situation, insurance needs and financial objectives over the life of the product, as evaluated in light of the consumer profile information; and (iv) Communicate the basis or bases of the recommendation. It is fraud when a policy is sold that does not meet this standard.
Another common area of fraud is in the switching of policies. The longer you hold a policy the lower the surrender charges and the more the policy is worth. Agents and brokers often pressure consumers to sell one policy to purchase of another. This is rarely a good idea. This is usually driven more by the high commission of selling a new policy, then by problems with an old policy.
Many states limit the ability to switch policies. Most states have issued warnings to consumers about the practice. Some states even require that the agent / broker read such warnings aloud to consumers prior to switching policies. Victims of switch often pay hundreds of thousands of dollars because of the practice. Many do not even realize the costs that they have incurred.
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