Compliance traps: Don't kick the can (part 2)

What exactly should you disclose? That varies by license type, but generally disclosures fall into four basic areas.

• Information about the product your prospects are considering purchasing, including specific details that define how the product works, its material risks and its future performance.
• Information about the carrier that will provide the product, including its rating and track record.
• Information about the application and any underwriting process, especially about the risks of providing false medical information for health, life or disability insurance.
• Information about the specific product illustrated in your sales presentation, especially the difference between future values that are projected vs. guaranteed minimums.

A fifth type of disclosure involves information about you and your firm. Depending on your license type, you may be required to provide details on your business background, business processes, fees, and conflicts of interest.

Signing your life away
It is important to disclose the reasons for purchasing a product and get a written sign-off on those reasons. So is documenting instances when a prospect declines to buy a product you’re recommending. This type of full disclosure can prevent a lot of grief when your client dies and you begin dealing with beneficiaries. Because beneficiaries often challenge the decisions of their deceased parents, it’s best to document those decisions very carefully in writing while the parent is still alive.

There are other disclosure items as well, which are beyond the scope of this column. But here’s the bottom line: To avoid booby traps around client disclosures, be generous with information, especially if it deals with product needs, costs or benefits.