Agents, planners and advisors should be aware of three major considerations when clients call you on the fly with questions about life insurance. 1) Who is the client? 2) What is the agent’s role? 3) What temptations should you avoid?

The answers may help you make decisions that avoid malpractice claims and also provide top-level service to your clients. Below are suggested strategies to consider, gleaned from my work with producers. Be sure to consult with your own legal counsel for specific advice.

1) Who is the client?
One would think that this question has an obvious answer. But, in many cases, to find the answer one must think about the situation.

This question seems to be coming up more frequently in recent years, perhaps because baby-boomers are aging and they are trying to help organize their parents’ estates. For such clients, guaranteed insurance benefits, in life insurance and annuities, are often important considerations.

When an existing client asks you to help plan his parents’ estate, you will want to ask yourself, who actually is the client? Is it the existing client or the parents?

The answer depends on what you are being asked to do. For example, in my opinion, if you are asked to plan the parents’ estates for Medicaid nursing home purposes, the interest of the children and the parents may be adverse. What is good for one is not good for the other. In that case, you cannot represent both parties, as that would be a conflict of interest.

This may apply to choice of products, too. A guaranteed product may be better for the parents. But the children may want the parents to assume more of the insurance risk, so more might be left for them after the parents die. The final decision on this is up to your client, whomever your client may be.

My suggestion: In these situations, ask yourself, “Who is the client?” If it is the parents (and I think it is, if you are advising them about what to do with their estates), then you must act accordingly.

Another suggestion: Meet with the parents alone, without pressure from the children. You will be amazed at what the parents will tell you when the kids are not around. My experience is that the parents do not want to upset the children, as they may have to rely on the children as the primary care giver in later years. So, the parents may not express their true feelings when the kids are around.

2) What is the agent’s role? The line between insurance planning and legal and tax advice may be blurry, and it gets blurrier all the time. The reason is that new tax laws affect life insurance and its use in business and estate planning. So, to advise clients about life insurance, the agent has to know about the law.

The agent must be sensitive to where insurance advice ends, and legal advice begins. More often, the agent must be sensitive to where insurance advice and legal advice may overlap.

While the agent should advise the client about life insurance issues, if those issues involve legal issues, the agent should defer to the attorney–always. Why? If the agents advice has legal consequences, the agent can be held liable for giving legal advice.

Seeing an agent testify about matters involving legal significance is not a pretty picture! A good plaintiff’s attorney can make even the best agent look bad in these situations.

Example: Some apparently simple decision–such as who to name as beneficiarymay involve insurance and legal and tax issues. If estate planning issues exist, especially taxes, the attorney or CPA should be involved. This can be accomplished with a closing letter that summarizes what was done and why.

The same would apply to the choice of products, particularly choices involving guarantees. The guarantees or lack of them can make or break an estate plan.

One choice is not necessarily always better than the other. In some instances, purchasing a guaranteed product may make sense, while in others it may not. This is the client’s choice to make, with the assistance of the entire estate planning team, so that everyone knows what to expect as the years unfold.

3) Avoid temptation! Consider these tempting situations:

A member of your golf club is very successful, but you never have had a good opportunity to get in front of him. You really want his business. Then, one day, he calls you, saying he has a pension plan that he took loans from and did not follow the rules. The Internal Revenue Service is after him for $1 million in back taxes. He tells you he has heard that any money he puts into an annuity cannot be reached by the IRS.

The client tells you one or more of the following: My attorney died. My attorney will charge me if I ask him about this. My attorney does not know about this. My attorney moved away.

The client asks you a question that is not about insurance, but is obviously a legal or tax question unrelated to your expertise.

What do you say in these situations? I submit to you that all three are to be avoided. Each can get you into trouble. For example, the first situation can lead to charges of assisting a taxpayer to defraud the government. The reasons cited in item two are not good reasons to call the insurance agent instead of the lawyer (see the discussion above about making a good witness for the plaintiff in a malpractice action). The same applies to item three.

All of these situations can also apply to decisions about purchasing guaranteed or non-guaranteed products.

In sum, when clients bring up questions, stop and think about the three questions these pose for you. If you feel hesitant, that should be a signal to you to go an extra step or two before concluding the transaction.

Douglas I. Friedman, a partner in the Friedman & Downey, P.C. law firm of Birmingham, Ala., is national counsel on estate and business planning for insurers. His e-mail is doug@fdatty.com.


Reproduced from National Underwriter Life & Health/Financial Services Edition, July 21, 2003. Copyright 2003 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.