As financial advisors you wear several hats and address many areas that can have an adverse impact on your clients' financial well-being. And while you may discuss things such as wills, trusts and health, and disability insurance, many of you sell life insurance to help your clients achieve their planning goals. Additionally, almost without exception, advisors at least touch upon property and casualty insurance to varying degrees.

Since life insurance and home, auto and umbrella insurance are necessary foundations to protect your clients' wealth now and in the future, it is imperative that financial advisors have a strong understanding of the duties and responsibilities of both buyers and sellers in insurance transactions.  While in many states different licenses are required to sell different insurance products—such as an L&H license to sell life insurance and a P&C license to sell home, auto and umbrella policies—the duties and responsibilities of those who sell these products are similar. 

A significant part of my business practice over the past decade has been focused on providing insurance litigation support and expert witness testimony. I have been involved in cases for both plaintiffs and defendants,and regardless of the side I am working with, I have observed what courts and/or juries have deemed "negligent" behaviors related to both insurance agents and insurance purchasers. I have seen many positive outcomes resulting from having the proper insurance coverage in place at the time of a covered loss. But I have also seen several negative situations arising from insurance policies that failed to provide needed coverage at the time of loss. 

Recognize that difficulties may arise at the very start of new relationships between insurance agents and clients—during the insurance sales process itself. A frequent reason that insurance coverage problems arise can be traced back to a lack of communication between the buyer of insurance, the "insured," and the person selling insurance, the "agent." Many such communication breakdowns occur because both the insured and the agent fail to fully understand their roles in the insurance sales process. 

It is critical that you recognize that certain general sales characteristics apply to the insurance sales process. As is true in most sales transactions, the ultimate goal is to close a sale. So while insurance agents use different sales pitches and varying degrees of industry jargon when offering an insurance policy to prospects, their primary objective is to sell insurance.

With the exception of certain special circumstances that arise between the insurance agent and insurance purchaser, many state courts have held that insurance agents need only place the insurance order given to them by their customer. Said another way, one of the insurance agent’s primary responsibilities is generally to use reasonable skill and diligence to put into effect the insurance that is requested by their customer, and to act in good faith towards them during this process.  

A major problem related to the insurance sales process is that many insurance purchasers fail to understand their own responsibilities in these situations. Insurance buyers are usually held to be responsible for actions such as:

  1. Understanding coverages that are desired and advising their insurance agent of same

  2. Choosing limits of insurance for various coverages that are ordered

  3. Reading insurance policies, once delivered, to determine whether the insurance coverages that have been requested have actually been provided.

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