What are some of the most common errors that get agents into legal trouble? The single biggest problem is the completion of the application form, says Jim Bullock, an Ontario-based veteran life insurance advisor and a consultant who acts as an expert witness in lawsuits involving agents.As an example, he just had one case cross his desk where the medical health questionnaire asks “Have you ever been treated for, diagnosed with or been tested for” followed by a laundry list of illnesses. In this case, the applicant answered ‘No’ all down the line of questions.
The key word in this question is “tested”, observes Mr. Bullock. “One of the illnesses is diabetes. Is there an adult in Canada who hasn’t been tested for diabetes? It’s part of your urine test isn’t it? One of the questions is blood pressure. You think there is an adult Canadian who hasn’t been tested for high blood pressure? And there are 10 other questions just like that. So the answer for that question has to be ‘Yes’. And on these forms they’re routinely ‘No’.”
Mr. Bullock says an incorrect answer such as this leads to claim denials. And when the claim doesn’t get paid, the agent will get sued.
Another way that advisors find themselves in hot water is for using the word “will”. For example, if an agent tells a client “this will happen, or this will do something or I will do something, that’s an undertaking. So if what you say is going to happen doesn’t happen, you’ve created a liability out of thin air.”
Mr. Bullock says the classic example of this is the agent who wrote a letter to his client saying ‘this will be enough insurance to pay for the capital gains on your shares.’ “Let’s think about that for a moment. Does the agent know when the guy is going to die? Does the agent know how big the capital gain is going to be? Does the agent know what the tax rate is going to be? The answer to those questions is NO. If he doesn’t know those things, how the hell can he say this policy will be enough to pay the capital gains tax on the shares?”
Failure to disclose risks is another problem. “The agent has to make sure that he has disclosed and mentioned the risks. Risks are not bad. People take risks all the time. The point is that it has to be the client who takes the risk, not the agent who takes the risk.” The way the client takes the risk is that the agent says ‘this will work great as long as interest rates remain above five percent. If interest rates go below five percent you’ll have to put more money into the policy.’ “Now the client knows, now the client is taking the risk…If the client wasn’t told, then the agent took the risk, the agent tried to gamble the client’s money, he has to repay the loss himself.”
And another growing issue is the need for agents to offer or make their clients aware of the range of products that are available to them, he says.
Offering them life insurance and not disability or critical illness insurance could lead to trouble down the road if the client suffers a heart attack for example, warns Mr. Bullock. “He doesn’t have critical illness insurance, why doesn’t he have critical illness insurance? The agent didn’t offer it. Sue the agent because if the agent had offered it I would have bought it and clients win those cases.”