Life insurance sellers exempt from fiduciary responsibility on clarkhoward.com

Clark recently received a report from a life insurance insider which contained info that just tore the industry apart.

The insurance industry is one in which bad apples exist right alongside the good apples. Ultimately, however, this is an industry that would not exist if not for a real need. For some families, a life insurance policy can mean the difference between poverty and financial survival. Still, Clark wants to alert you to some dangers.

Much like full-commission stockbrokers, insurance salespeople are exempt from what's called "fiduciary responsibility." Fiduciary responsibility simply means your interests must be put first in all business dealings...and sadly they're not required to do that.

Let's say you go to a full-commission stock brokerage. They're allowed to do what helps them first as long as the investment they put you in is generally "suitable." So if, for example, it would be great for you to own a stock fund, the full-commission broker can pick the most expensive, lowest-performing stock fund for you if it earns them a bigger commission. Even if that investment financially harms you!

When it comes to life insurance, 98% of us would be well-served with a plain simple level term insurance policy. But in huge numbers, we're pushed to buy whole life. Why? Because it has huge commissions vs. the tiny commissions on level term insurance.

Remember, the insurance salespeople are not held to fiduciary standards, no matter how nice and charming they may seem.

What others are saying

Whole VS Term
Obviously Clark has not seen the whole industry of Insurance. If he actually understood how a whole life policy from Northwestern Mutual performed over time, I think his thoughts would be different. I don't know how someone could be so narrow-minded and to give advice in an area where he has no experience or expertise.
By Consumer @ 08/18/10 01:08:51 PMreport abuse
Fiduciary Standard
While insurance agents and stockbrokers aren't subject to fiduciary standards, nether is Clark Howard. In fact, he is not subject to any industry oversight and can and does give one-sided analysis based on his limited understanding of how financial products work. While he might have some understanding of his subject matter, and he might also have some credibility, he lacks the customization necessary to craft a unique solution for each listener. No one product is right or wrong for everyone.
My advice; find a CERTIFIED FINANCIAL PLANNER who charges a fee to write a financial plan and tune out the rest, including Clark.
By James @ 08/16/10 09:52:11 AMreport abuse
Agents
Well in Florida the rule are different, just like the commercial says...I f you do not protect the comsumer, especially seniors, you not only stand to lose you license, but you can go to jail. Also, like some others have stated....if you are in the insurance business for money you will eventually fail. If you are an agent to help others, the money will come, and yes you do have to work if you want a rewarding career.
Thanks for all youo do Clark
By Mike @ 07/03/10 01:11:11 PMreport abuse
What you don't know can hurt you
There is no crook free industry including yours. Regardless of the negatives, Life Insurance is still the safest place to keep and grow your money, without any worry of lost. It is a tier one asset for banks and corporations. Most people are only familiar with insurance that someone benefits from after their death and are totally ignorant of the living and business benefits. A quote tool will not give you this information. Only licensed agents have this information. If safety is important to you, make sure that a trusted life insurance advisor / broker is on your financial planning team. If an agent is representing on one company, he / she is forced to make you think that that company's products will fit your needs. You are not helping yourself by not doing your due diligence to fine a Life insurance broker that you can trust to do what is in your best interest. These brokers usually want you as a client for life so they want to make you as happy as possible so that you'll refer your friend and family. They will usually meet with you several times to get familiar with you and your situation and what it is that you're trying to do, before they suggest a product or strategy. Come on people, stop throwing the baby out with the bath water.The Financial Freedom that you save may be your own.
By John A @ 06/13/10 09:03:01 PMreport abuse
Sales agents
I have to agree with one of the comments below. If you are in insurance sales for the commission you will not last long at all. It is a hard job. I just started with a company and they have in place a system to protect the consumer to make sure an agent can't oversell something they don't need or can't afford. I really liked that. My dad has sold insurance for many many years and I've heard all the stories. I honestly enjoy helping people,especially seniors. I just left the real estate arena. But either in Real Estate or insurance I like helping others. The paycheck any any commission based company comes with hard work and to me, commitment to do a great job for those you are helping. Thank you.
By anonymous @ 06/09/10 11:23:06 PMreport abuse
Not homogeneous
People, there's no "one size fits all" here. There are good attorneys, bad attorneys, good investment advisors and bad ones...good doctors and ones who should probably be locked up. I would agree that the majority of insurance salespeople are in it for themselves first, but I know several good ones who honestly put the needs of their clients first.
By Don @ 06/06/10 12:32:20 AMreport abuse
life insurance
If an agent is just in it for the commissions, he won't last long, duh.......
By mike @ 03/11/10 01:49:53 PMreport abuse
insurance vs investment
some of you seem to be confused - life insurance policies are not investments; it's insurance. just because the company is making a profit doesn't mean they are in 'shenanigans' by doing so.

I would agree with clark that most folks don't need whole life insurance, however. most folks also don't need a brand-new car with a moonroof either, but I don't think that makes the car companies crooks for selling them.
By Chris @ 03/10/10 11:41:52 PMreport abuse
insurance
Just look at the insurance commission in ANY state.It's usually run by and made up of people straight out of the ins. industry. That's what I call the fox guarding the henhouse !
By Mister Mike @ 03/10/10 05:36:45 PMreport abuse
Life Insurers: Sometimes there is a fiduciary duty -- when policy connected to employment
This is slightly off topic, but I am an attorney involved in prosecuting the practices of a number of different life insurance companies for breaches of fiduciary duties. If a life insurance policy is connected to one's employment, the insurer may have fiduciary obligations when it pays a death benefit.

A groundbreaking decision from one of my cases (in a federal appeals court) basically said that the insurance company owes a fiduciary duty to the beneficiary with respect to this practice.

In the cases that I am prosecuting, typically, the insurance company holds onto the death benefit by setting up a "checking account" and issues to the beneficiary a checkbook instead of a check. The insurance company then invests the money it retains (leftover from monies not drawn down from the checking accounts) and takes nearly all of the profits for itself. The beneficiary gets paid a fraction of the amount the insurer makes. In almost every instance, the beneficiary is unaware that the insurer is doing this type of shenanigans. The insurer uses these mega profits to benefit itself and not the beneficiaries.

This litigation has not been resolved yet, but there are hundreds of millions of dollars at stake -- money that should go to the beneficiaries.
By Jeff Casurella @ 03/10/10 03:08:03 PMreport abuse
Another Free Market Fail
Another term for free market is a word I saw below, middleman.
First the banks now insurance companies? Do we continually need to regulate all these industries who's main purpose is to make money at all costs? Yes. If we as a country are too afraid and intelligently unable to move to a socialist type insurance system than we need REGULATIONS in ALL areas of insurance, then we need more REGULATIONS on top of those. If we have learned nothing the last 10 years we have learned that the free market does not work in every industry, especially those industries hellbent on taking your money.
Both set of my grandparents had life policies set-up and ALL were whole life ones promoted by that scumbag middleman, which ended up making their policies much more worthless. My parents learned from their parents mistake and went with a simple policy as I will do. To think of all the past years and those bad policies sold and all the people affected, makes one want to scream. Just like a car salesman these insurance sales people should not even exist, everything is made complicated ie-taxes as to force us into these 3rd and 4th person relationships. My faith in capitalism as we use it has reached an end.
By Chris @ 03/10/10 01:07:05 PMreport abuse
FIDUCIARY RESPONSIBILITYES
MY MOTHER DIED THIS LAST JULY. SHE HAD REQUESTED ME TO GET IN TOUCH WITH LIBERTY NATIONAL WITH WHOM SHE HAD A POLICES SINCE 1957 TO CHANGE HER BENIFICIARY. THE LADY I SPOKE WITH WAS LOCAL IN THE NASHVILLE AREA. SHE SAID SHE WOULD GO TO THE NURSING HOME AND HAVE HER SIGN A NEW BENIFICIARY. MY MOTHER INFORMED ME SEVERAL DAYS LATER AMY FROM LIBERTY HAD CAME AND SHE HAD CHANGED HER POLICIES. AMY WAS FIRED ON JUNE 29TH. LIBERTY SAYS PROVE IT!!!INSURANCE COMPANIES SHOULD NOT ALLOW ANY EMPLOYEE TO CHANGE BENIFICIARIES WHILE THEY ARE A 1099 STATUS. GOD HELP US ALL.
By LINDA HOPKINS @ 03/10/10 11:18:55 AMreport abuse
Insurance Sales
Thanks a lot Clark. Now how am I suppose to make a living?
By Geico Caveman @ 03/09/10 09:58:27 PMreport abuse
Life Insurance Sales Specialists Are Just That
Like any other pursuit and vocation insurance sales people can be just that focused exclusively on their commissions or in fact they can truly have the client's best interests at heart and be trusted advisors. Please take a moment to consider just like Clark Howard is a wonderful consumer advocate there are many insurance specialists who truly want to protect their clients wealth with appropriate solutions to fit nicely in a larger portfolio
By Joe McQuaid @ 03/09/10 08:27:55 PMreport abuse
Naiive People
Insurance salesmen are just like car salesmen. They are going to do their best to sell you the product that makes them the most money. And just like when you are buying a car, you need to have your wits about you and know what you are doing. This may be tough because the policies are written with terms that are intentionally confusing and it is difficult to compare different policies. But that does not excuse the buyer from being knowledgeable or cautious. So let the buyer beware.
By Buzz G @ 03/09/10 07:52:12 PMreport abuse
No scruples...
Most commission merchants are psychopaths.
By Have I got a deal for you... @ 03/09/10 06:00:17 PMreport abuse
The Key Word Here is "Salespeople" :0
We need to start being more prudent and asking ourselves is the person pitching to me a salesperson?

Sales people have quotas to meet and are paid by commissions, even if they claim they are on a salary.

Most sales jobs, make the sales person double their weekly salaries in sales, before they see any commissions. If they don't meet the double your salary sales each week, they get fired.

This is why I think Vangard is the best buy in town for investments. You are your own sales person. You get to pick the investments that you feel work for you. For example, I think people should buy stock in products and companies they already do business with by being a consumer first.
By PennyPincher @ 03/09/10 03:30:23 PMreport abuse

Whole VS Term

Obviously Clark has not seen the whole industry of Insurance. If he actually understood how a whole life policy from Northwestern Mutual performed over time, I think his thoughts would be different. I don't know how someone could be so narrow-minded and to give advice in an area where he has no experience or expertise.

By Consumer @ 08/18/10 01:08:51 PMreport abuse

Fiduciary Standard

While insurance agents and stockbrokers aren't subject to fiduciary standards, nether is Clark Howard. In fact, he is not subject to any industry oversight and can and does give one-sided analysis based on his limited understanding of how financial products work. While he might have some understanding of his subject matter, and he might also have some credibility, he lacks the customization necessary to craft a unique solution for each listener. No one product is right or wrong for everyone.
My advice; find a CERTIFIED FINANCIAL PLANNER who charges a fee to write a financial plan and tune out the rest, including Clark.

By James @ 08/16/10 09:52:11 AMreport abuse

Agents

Well in Florida the rule are different, just like the commercial says...I f you do not protect the comsumer, especially seniors, you not only stand to lose you license, but you can go to jail. Also, like some others have stated....if you are in the insurance business for money you will eventually fail. If you are an agent to help others, the money will come, and yes you do have to work if you want a rewarding career.
Thanks for all youo do Clark

By Mike @ 07/03/10 01:11:11 PMreport abuse

What you don't know can hurt you

There is no crook free industry including yours. Regardless of the negatives, Life Insurance is still the safest place to keep and grow your money, without any worry of lost. It is a tier one asset for banks and corporations. Most people are only familiar with insurance that someone benefits from after their death and are totally ignorant of the living and business benefits. A quote tool will not give you this information. Only licensed agents have this information. If safety is important to you, make sure that a trusted life insurance advisor / broker is on your financial planning team. If an agent is representing on one company, he / she is forced to make you think that that company's products will fit your needs. You are not helping yourself by not doing your due diligence to fine a Life insurance broker that you can trust to do what is in your best interest. These brokers usually want you as a client for life so they want to make you as happy as possible so that you'll refer your friend and family. They will usually meet with you several times to get familiar with you and your situation and what it is that you're trying to do, before they suggest a product or strategy. Come on people, stop throwing the baby out with the bath water.The Financial Freedom that you save may be your own.

By John A @ 06/13/10 09:03:01 PMreport abuse

Sales agents

I have to agree with one of the comments below. If you are in insurance sales for the commission you will not last long at all. It is a hard job. I just started with a company and they have in place a system to protect the consumer to make sure an agent can't oversell something they don't need or can't afford. I really liked that. My dad has sold insurance for many many years and I've heard all the stories. I honestly enjoy helping people,especially seniors. I just left the real estate arena. But either in Real Estate or insurance I like helping others. The paycheck any any commission based company comes with hard work and to me, commitment to do a great job for those you are helping. Thank you.

By anonymous @ 06/09/10 11:23:06 PMreport abuse

Not homogeneous

People, there's no "one size fits all" here. There are good attorneys, bad attorneys, good investment advisors and bad ones...good doctors and ones who should probably be locked up. I would agree that the majority of insurance salespeople are in it for themselves first, but I know several good ones who honestly put the needs of their clients first.

By Don @ 06/06/10 12:32:20 AMreport abuse

life insurance

If an agent is just in it for the commissions, he won't last long, duh.......

By mike @ 03/11/10 01:49:53 PMreport abuse

insurance vs investment

some of you seem to be confused - life insurance policies are not investments; it's insurance. just because the company is making a profit doesn't mean they are in 'shenanigans' by doing so.

I would agree with clark that most folks don't need whole life insurance, however. most folks also don't need a brand-new car with a moonroof either, but I don't think that makes the car companies crooks for selling them.

By Chris @ 03/10/10 11:41:52 PMreport abuse

insurance

Just look at the insurance commission in ANY state.It's usually run by and made up of people straight out of the ins. industry. That's what I call the fox guarding the henhouse !

By Mister Mike @ 03/10/10 05:36:45 PMreport abuse

Life Insurers: Sometimes there is a fiduciary duty -- when policy connected to employment

This is slightly off topic, but I am an attorney involved in prosecuting the practices of a number of different life insurance companies for breaches of fiduciary duties. If a life insurance policy is connected to one's employment, the insurer may have fiduciary obligations when it pays a death benefit.

A groundbreaking decision from one of my cases (in a federal appeals court) basically said that the insurance company owes a fiduciary duty to the beneficiary with respect to this practice.

In the cases that I am prosecuting, typically, the insurance company holds onto the death benefit by setting up a "checking account" and issues to the beneficiary a checkbook instead of a check. The insurance company then invests the money it retains (leftover from monies not drawn down from the checking accounts) and takes nearly all of the profits for itself. The beneficiary gets paid a fraction of the amount the insurer makes. In almost every instance, the beneficiary is unaware that the insurer is doing this type of shenanigans. The insurer uses these mega profits to benefit itself and not the beneficiaries.

This litigation has not been resolved yet, but there are hundreds of millions of dollars at stake -- money that should go to the beneficiaries.

By Jeff Casurella @ 03/10/10 03:08:03 PMreport abuse

Another Free Market Fail

Another term for free market is a word I saw below, middleman.
First the banks now insurance companies? Do we continually need to regulate all these industries who's main purpose is to make money at all costs? Yes. If we as a country are too afraid and intelligently unable to move to a socialist type insurance system than we need REGULATIONS in ALL areas of insurance, then we need more REGULATIONS on top of those. If we have learned nothing the last 10 years we have learned that the free market does not work in every industry, especially those industries hellbent on taking your money.
Both set of my grandparents had life policies set-up and ALL were whole life ones promoted by that scumbag middleman, which ended up making their policies much more worthless. My parents learned from their parents mistake and went with a simple policy as I will do. To think of all the past years and those bad policies sold and all the people affected, makes one want to scream. Just like a car salesman these insurance sales people should not even exist, everything is made complicated ie-taxes as to force us into these 3rd and 4th person relationships. My faith in capitalism as we use it has reached an end.

By Chris @ 03/10/10 01:07:05 PMreport abuse

FIDUCIARY RESPONSIBILITYES

MY MOTHER DIED THIS LAST JULY. SHE HAD REQUESTED ME TO GET IN TOUCH WITH LIBERTY NATIONAL WITH WHOM SHE HAD A POLICES SINCE 1957 TO CHANGE HER BENIFICIARY. THE LADY I SPOKE WITH WAS LOCAL IN THE NASHVILLE AREA. SHE SAID SHE WOULD GO TO THE NURSING HOME AND HAVE HER SIGN A NEW BENIFICIARY. MY MOTHER INFORMED ME SEVERAL DAYS LATER AMY FROM LIBERTY HAD CAME AND SHE HAD CHANGED HER POLICIES. AMY WAS FIRED ON JUNE 29TH. LIBERTY SAYS PROVE IT!!!INSURANCE COMPANIES SHOULD NOT ALLOW ANY EMPLOYEE TO CHANGE BENIFICIARIES WHILE THEY ARE A 1099 STATUS. GOD HELP US ALL.

By LINDA HOPKINS @ 03/10/10 11:18:55 AMreport abuse

Insurance Sales

Thanks a lot Clark. Now how am I suppose to make a living?

By Geico Caveman @ 03/09/10 09:58:27 PMreport abuse

Life Insurance Sales Specialists Are Just That

Like any other pursuit and vocation insurance sales people can be just that focused exclusively on their commissions or in fact they can truly have the client's best interests at heart and be trusted advisors. Please take a moment to consider just like Clark Howard is a wonderful consumer advocate there are many insurance specialists who truly want to protect their clients wealth with appropriate solutions to fit nicely in a larger portfolio

By Joe McQuaid @ 03/09/10 08:27:55 PMreport abuse

Naiive People

Insurance salesmen are just like car salesmen. They are going to do their best to sell you the product that makes them the most money. And just like when you are buying a car, you need to have your wits about you and know what you are doing. This may be tough because the policies are written with terms that are intentionally confusing and it is difficult to compare different policies. But that does not excuse the buyer from being knowledgeable or cautious. So let the buyer beware.

By Buzz G @ 03/09/10 07:52:12 PMreport abuse

No scruples...

Most commission merchants are psychopaths.

By Have I got a deal for you... @ 03/09/10 06:00:17 PMreport abuse

The Key Word Here is "Salespeople" :0

We need to start being more prudent and asking ourselves is the person pitching to me a salesperson?

Sales people have quotas to meet and are paid by commissions, even if they claim they are on a salary.

Most sales jobs, make the sales person double their weekly salaries in sales, before they see any commissions. If they don't meet the double your salary sales each week, they get fired.

This is why I think Vangard is the best buy in town for investments. You are your own sales person. You get to pick the investments that you feel work for you. For example, I think people should buy stock in products and companies they already do business with by being a consumer first.

By PennyPincher @ 03/09/10 03:30:23 PMreport abuse

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Mar 09, 2010 -- Life insurance sellers exempt from fiduciary responsibility

What others are saying