Ethics: Responsibilities, Obligations, and Codes

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Accuracy, Suitability, & Disclosure

Obligations to Clients

Agents have certain responsibilities and obligations to their individual clients in addition to the public in general. Some of the more important of these client duties are accuracy, suitability, and disclosure.

Full and Accurate Disclosure

Agents must inform their clients fully and accurately about all aspects of the product or products being recommended, including all limitations as well as benefits, with no attempt to hide or disguise the nature of the products or the insurer being represented.

Ethical and Fast Delivery

The agent must maintain ethical fitness while carrying out his or her professional activities, upholding the highest ethical standards and scrupulously avoiding the use of any prohibited or unlawful practice or act. Agents should make sure that the insurer delivers all services promptly and as promised.

Accuracy of Information

When representing the benefits of a recommended product, the agent must make accurate contract and proposal recommendations and avoid any misstatements or false or misleading estimates and illustrations.

Suitability

Different prospects require different sales methods and most insurance professionals would agree to that. One prospect might seem to have only a single need to be addressed while another might appear to have two or more needs. Yet another person's situation might demand a comprehensive analysis to discover exactly what his or her various needs are and how to most logically fulfill them. It is entirely possible that the prospect does not even know exactly what is needed because he or she has never thoroughly analyzed his or her own financial situation with that end in mind.

Agents should make every effort to determine the need or combination of needs for every product sold and to apply to that need the appropriate product in the appropriate manner. Today, one product may fulfill a wide variety of needs.

For a single need, a client will desire a policy for one reason only:

to provide a fund to generate income for the insured's family

to pay off a mortgage or other large debt

to provide for the education of a child

to pay final expenses at death

to help pay estate and/or inheritance taxes in larger estates

Any of these needs may exist alone or they may exist in combination with other needs. The agent will not know, unless he or she asks, whether the correct single need or the correct combination of needs is being addressed. It has happened many times that an agent has sold a policy for the single need described by the prospect, only to find out years later that a number of needs existed that the prospect had not mentioned, but which could have been revealed in a short exploratory conversation.

Agents have been called lazy, incompetent, and worse for not providing coverage a surviving spouse thought should have been there, but wasn't. In today's environment it is justified to expect a professional insurance person to inquire into all such various needs, and to make sure the survivors will have the assets they need at the insured's death.

Because of this, a comprehensive analysis of the insured person's financial responsibilities and insurance needs is always important. Only when the agent, the client, and the client's spouse, have gone through a thorough fact-finding process, can the agent say that all needs have been professionally explored and discussed.

The agent owes it to him or herself and the client to do a thorough analysis of the information once a comprehensive fact finding interview has been conducted and all necessary notes made. A number of computer programs exist which will do this sort of work, which, if done by hand, would take a very long time and much effort. Any such analysis needs to include certain assumptions for the future rate of inflation, and for the rate at which pledged assets grow.

Such a program will not only explore and quantify all of the various needs for insurance at the time it is done, but it will provide the basis in the future for regular updates of the information and adjustments to the client's insurance plan. In a great many instances, a surviving spouse has asked the agent to go over the plan with him or her after the insured's death, to review with them exactly what amount of insurance money was supposed to be applied to exactly which financial need. Many agents describe this as the most moving and satisfying service they have ever provided for their clients.

A comprehensive analysis also safeguards the agent's interests in addition to the practical benefits described above. When kept in the agent's records, it provides evidence that the plan was done thoroughly and in good faith, with full understanding by the clients. Some agents, for all of the reasons above, refuse to work with a new client unless they will agree to go through such an analysis because it is concrete evidence of the agent's ethical conduct in his or her business dealings.

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Not only are policy forms, clauses, rules and court decisions constantly changing, but forms vary from company to company and state to state. This material is intended as a general guideline and might not apply to a specific situation. The authors, LunchTimeCE, Inc., CEfreedom, and InsuranceEthics101.com, and any organization for whom this course is administered will have neither liability nor responsibility to any person or entity with respect to any loss or damage alleged to be caused directly or indirectly as a result of information contained in this course.