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Policy applications: To lie is to lose

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Some agents shade the truth when filling out a life or annuity application. Perhaps they “forget” to write down a client’s health issue. Or they “round up” the client’s net worth to justify a larger face amount. They may justify these fibs to themselves, but ethically speaking, they’re still lies. Once you get comfortable telling small lies, it’s a slippery slope down from there. Here’s a case in point.

As you may know, Stranger-Originated Life Insurance (STOLI) is in regulatory hot water. Recently, hedge funds have been taking out life insurance policies on strangers, paying the premiums and then paying back investors (with profit) when the insureds die. For their “trouble,” insureds get 3 percent to 5 percent of the face amount. But here’s the rub: STOLI transactions often lack legitimate insurable interest. Plus STOLI agents often submit fraudulent applications to insurance companies. A recent Wall Street Journal article painted a sordid picture of agents who did the following:

  • Grossly overstated clients’ net worth. One agent claimed his near-destitute
    client had a net worth of $12.5 million.
  • Baldly misrepresented existing life insurance coverage. By “hiding” existing coverage on applications, an agent was able to rack up 44 policies for $127.8 million in face amount–for one insured!
  • Blatantly forged key documents. One agent forged his client’s signature on the app and provided a fake accountant’s letter claiming his middle-class insured had $44 million in income.
  • Cunningly hid their STOLI plans from carriers. When asked outright whether the insured planned to sell their policies to a third party, agents simply answered “no.”

Clearly, these agents had no qualms about lying. It became just another way to aggrandize their egos and bank accounts at the expense of others. They lied–and not surprisingly, they lost!

But what about you?
If you don’t do STOLI sales, what can you learn from their mistakes? Here are a few ethical lessons to ponder:

There is no such thing as a “little white lie.” All lies are serious and can get you into serious trouble.
The ends don’t justify the means. Once you start operating this way, you will soon believe that anything is acceptable as long as it feathers your nest.

Writing a false fact on an application is no less serious than telling a lie to someone’s face. Both are wrong. Don’t assume your company is too large to be affected by one agent’s falsehoods. The carrier’s finances might be in jeopardy.

Finally, at the end of the day, understand that lying is a losing proposition. It may well inflate your income for the short term, but it will mark you as a loser for the rest of your life.


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