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Five Lies your Insurance Agent May Have Told You

Over the past few years I have sat with and helped hundreds of clients. A high percentage of them, more than I would like to admit, already had some form of coverage, didn’t know what they had exactly ad were told a lie by the agent or advisor that helped them. In this article I am going to cover the five most common lies that insurance agents tell in order to get sales, how to spot it and how to protect yourself from it. 

  1. Accidental vs. Term Coverage

I can’t tell you how many times I have sat with middle aged clients, who already had a policy and were very proud of it, because they had $300,000 worth of coverage and only paid $35 a month. This should always be a red flag! Unless you are very young and in great health, you’re likely not going to get a high amount of coverage for that cheap. Now to be clear, when I say middle age, I am talking the 35-55 age range. This situation typically happens to clients in their early 50’s. Some agent comes by and tells them they can get a 20-year term for them for only $30-40 a month. When this happens the client naturally gets excited. Then the agent puts in the application and doesn’t tell the client that, yes, it is a term, however it’s an accidental-only coverage term plan. This is a lie and happens quite a lot. Most clients don’t read the fine print or understand it, which is why advisors like us exist to assist in that. Then said client never looks at the policy ever, all the while thinking they are covered and for a great rate. Look at and review your policy! Look for the words Accidental Death Benefit, or ADB for short. The policy will detail what type of death benefit you have in place. Don’t get swindled into thinking you are getting a great deal for coverage that is not good for you. If you currently have a policy like this, go and pull the policy and verify. If you ever need assistance, you can message me at [email protected] and I will do a policy review with you, or you can contact the insurance carrier. Their number will be in the policy itself. Call and ask questions regarding your policy and policy type. 

2.  Guaranteed, Graded and Rated Policies

Depending on a client’s health they may or may not be approved for level coverage. If its level coverage that means it is day one coverage. Day one coverage pays out in full if anything happens, as long as the insurance carrier can determine that the questions on the application were answered honestly. If you’re not approved with level coverage, don’t fret. You can likely be approved with graded or rated coverage. Depending on the company, it changes on how their payouts go, however this means that your monthly premiums will be more expensive, and you will have a waiting period of two years, traditionally. A waiting period means that within two years of the policy start date if you, the insured, passes away the company will only return your payments, plus an additional percentage, usually an additional 10% on top of what was paid into the policy so far. It doesn’t happen often, but agents will do graded policies for their clients and they won’t tell them it’s a graded policy. Then something happens, the family doesn’t get the entire death benefit, and no one understands why. This scenario doesn’t happen often, but it does. An easy way to determine if you have a level or graded policy is to pull it out of the safe and review it. Your policy will specify the payout, as mentioned above. When meeting with an advisor, always ask them when the policy would be paid out and if there is a waiting period. 

3.  Whole Life vs. Increasing Terms

There is one company that is known for falsely advertising and selling policies as a whole life policy when in reality it’s an increasing term. Globe Life has a policy that is meant to be used for final expenses and depending on your age is likely the cheapest option out there. What they fail to tell you is the coverage will increase every five years, until the age of 85, and it gets so expensive, its unaffordable. Saving money in the near term is not worthwhile if you can’t keep the policy, 5, 10 or 15 years later. Make the smart decision, choose a policy that locks in your rate for your entire life when choosing a final expense burial policy. 

4.  “We don’t even know if you’re approved, until we submit a policy and the company can do underwriting”

This is a little secret statement that agents use, when they want to complete a sale with a client that is hesitant to move forward or wants time to think. This isn’t necessarily a lie, there is truth in the statement. The agent is just closing the deal under the belief that once it’s done and it is approved, the client will keep the policy. It is important to understand that the agent wants to make the sale, it is how they are paid. Hopefully, they also care about protecting you and your family with the best policy. When an agent says this, 9 times out of 10 the agent already knows you will be approved and is looking to just close the deal. This isn’t necessarily a bad tactic, however, its done out of a position of desperation. I wouldn’t want my advisor giving me advice on the best policy to apply for from that position. Sound decisions are not made in this fashion and that’s why this tactic is typically used by unexperienced/lesser experienced agents. 

5.  “Universal Life Policies Will Last Your Entire Life”

While it is true that Universal Life policies CAN last your entire life, they also may not. To blankly say they will is a misrepresentation and needs further clarification. Universal Policies are not Whole Life policies because their premiums are not locked, and they are invested into the market. Since their premiums aren’t locked, they can be increased, they will always have a minimum. That minimum can raise over time, usually when the insured hits mid to late 70’s, if only the minimum payments are paid with no additional premium being used to grow the investment. What happens next is the investment portion of the policy starts being used as a supplement to pay for the life insurance as the insured ages and the life insurance becomes more expensive. As the investment portion drains, the company is forced to increase the minimum monthly payment to maintain the amount of insurance on the insured. I have seen this happen time and time again. A client of mine was told he had a whole life policy that gets invested and grows for him and is called a universal. The client thinks the policies payments are locked at a specific rate, but the agent/advisor didn’t explain potential for the payments to rise over time. Every policy has a schedule of payments within it. You can visually see each year what the monthly payments are. If they are going to rise, it will be shown in the policy. There are too many potential situations to list or go over, so it is best to look at your policy and have an unbiased third-party advisor look it over with you. 

If you have a policy and you want to know if any of these situations have occurred to you, I can do policy reviews at no charge or obligation. I am happy to help, you can reach me at my email, mentioned above and I will do what I can to assist.