Why ethical consideration is important while selling final expense insurance?
We will help you to know the ethics of selling final expense insurance. You need to read this blog till the end to understand each and everything.
Let’s begin:
Final expense insurance, also known as burial or funeral insurance, serves as a financial tool aimed at covering the costs associated with end-of-life expenses. Marketers often target older adults with final expense insurance, as they may seek to alleviate the financial burden on their loved ones by covering funeral, burial, and related costs. While this type of insurance can offer peace of mind, it also raises several ethical considerations that warrant careful examination.
This blog explores these ethical considerations in depth, discussing transparency, targeting vulnerable populations, affordability, sales practices, and regulatory compliance.
Understanding Final Expense Insurance:
Final expense insurance, a type of whole-life insurance policy, covers end-of-life expenses. It is usually a small policy with benefits typically ranging from $5,000 to $25,000. The main purpose of this insurance is to help cover costs such as funeral expenses, outstanding medical bills, and other debts that may arise after a person passes away. This type of insurance can be particularly helpful for families who may find it challenging to cover the high costs of funerals, which often range from $7,000 to $12,000.
However, the unique nature of final expense insurance and its target demographic necessitate a thorough ethical evaluation. The clients are generally older adults, often on fixed incomes, and sometimes with limited financial literacy. These factors create a delicate environment where ethical considerations must be front and center in the sales process.
Selling Final Expense Insurance Ethically: Ultimate Guide You Need
Transparency and Disclosure:
Transparency poses one of the most significant ethical challenges in selling final expense insurance. Before making a purchase, consumers need to have adequate information about what they are buying policy terms and conditions, all other related factors, and the total cost of the policy over its complete life cycle. However, insurance products can now be confusing, and for different reasons, sometimes it can be due to mere misunderstanding, or even manipulation.
i. Full Disclosure:
Insurance agents must provide full disclosure about the policy, including Insurance agents must provide full disclosure about the policy, including:
- Premium Structure: Whether they are paid as fixed amounts or are correlated with the coverage.
- Waiting Periods: If the full benefits are not payable immediately i.e. where the benefits are subject to certain waiting periods.
- Benefit Amount: The amount of coverage should be clear so that people with lower extents of coverage, understand and accept to lower extents the policies.
- Policy Exclusions: It is the condition of the policy that prohibits payment in certain circumstances.
Omitting these elements can lead to clients making uninformed decisions, hindering their ability to overcome financial difficulties or meet expectations set by consultants. This paper’s understanding of ethical sales practices means that agents must relay all policy components frankly and honestly to the clients.
ii. Clarity In Communication:
This is because most clients would not understand the principle of insurance and the features of the policy and therefore the agent has to selflessly explain the details of the policy. Clients may not grasp what they are buying if they are told using professional terms or if examples are not given. Ethical communication also entails making certain that the client has an adequate grasp of the product in question as opposed to giving the mere impression that this is the case.
iii. Targeting Vulnerable Populations:
The dominant consumer group for final expense insurance includes pensioners who are susceptible to being trapped in abusive policies or having the capacity to grasp the offered insurance products. This poses serious questions on ethical considerations, especially in targeting and sales.
iv. Cognitive Decline and Decision-Making:
Older citizens may suffer from the loss of cognitive functioning, which may lead to a deficit in their decision-making capabilities and therefore, be vulnerable to being misled or pushed into making decisions they would otherwise not be capable of making. This, therefore, calls for an ethical approach to the selling process where agents should take extra precautions to see that the clients make informed decisions about the products being sold.
v. Financial Literacy:
For example, it is often noted that a significant number of older consumers have low levels of financial literacy, so they do not know how to assess whether a final expense policy is useful and essential, based on its price. There is certainly a lot of ethical obligation placed on agents to ensure that additional explanation is given on the policy and indeed the policy is investigated to determine if it is suitable for the client’s financial profile.
vi. Emotional Manipulation:
Some of these tactics may be very unethical, for instance; guilt is a powerful tool where a person is forced to feel guilty and enticed to give in just because they will be a burden to their friends and family. High-pressure selling strategies where agents take advantage of their client’s emotions and force them into a particular decision is considered unethical while neutrally sharing relevant factual data to help a client make an informed decision is considered ethical.
Pricing and Affordability:
The price of final expense insurance is also a very important ethical consideration since the insurance is offered at a much lower price than other forms of insurance policies. Premiums vary with benefit amounts and can be high, and the elderly living on fixed incomes may find it difficult to make their payments, which they may not anticipate the long-term costs of.
i. Premium Affordability:
Maintaining affordable premiums is crucial to appeal to the target market. Selling a policy that a client cannot afford to renew is unethical and contributes to financial strain. Agents must ethically assess the client’s financial capability and recommend the most affordable policy.
ii. Value for Money:
When obtaining final expense insurance, the policyholder should receive value for the premium paid. This requires assessing whether the policy’s risks outweigh its costs and benefits. Avoid costly policies or those that do not align with the client’s most crucial needs.
iii. Non-forfeiture Options:
Ideally, they should be able to include non-forfeiture options like lower premiums for paid-up amounts or extended term or even reduced benefits that the policyholder could receive even when he or she cannot pay for premiums anymore. They can assist clients from being locked out and losing all their coverages after having paid premiums for several years, a highly ethical consideration.
Sales Practices:
The conduct of sales agents is a significant factor in the ethical landscape of final expense insurance. Ethical sales practices go beyond avoiding fraud and deception; they include a commitment to professionalism, respect, and prioritizing the best interests of the client.
i. Training and Education:
Agents should be well-trained and knowledgeable about the products they sell. This enables them to provide accurate and useful information to clients, helping them make informed decisions. Ethical sales practices require that agents are competent and well-informed.
ii. Suitability Assessments:
Agents should conduct thorough assessments to ensure that the product is suitable for the client’s needs and financial situation. Selling a policy to someone who cannot afford it or does not need it is unethical. Suitability assessments help ensure that the policy aligns with the client’s circumstances and objectives.
iii. No Pressure Sales:
High-pressure sales tactics are unethical and can lead to clients making decisions that are not in their best interest. Sales should be conducted in a manner that allows the client to make an informed and voluntary decision. Ethical agents respect the client’s right to take their time and consider their options.
Regulatory Compliance:
Regulations are general ethical guidelines that must be followed to the letter within the insurance business. Final expense insurance is still under several legal regulations at the state and federal levels to safeguard the consumer. For ethical agents and companies involved in the provision of ethical practices, these are necessary regulations to follow.
i. Licensing Requirements:
Ensuring all agents hold proper licenses and complete state-mandated continuing education courses are fundamental ethical responsibilities. This significantly enhances the professionalism and competence of the industry’s workforce.
ii. Marketing Regulations:
It is crucial to suppose legal requirements concerning advertisement and marketing are appropriate to prevent dishonest promotional campaigns. Ethical companies also make sure that the advertisements place forward a truthful representation of the product and its uses.
iii. Consumer Protection Laws:
Adherence to all the consumer protection legal requirements protects the policyholders’ interests. These laws protect consumers from unfair, deceptive, or abusive products and services. Adhering to them ensures that customers trust the company and receive ethical treatment.
iv. Addressing Ethical Issues:
To solve the ethical problems for selling final expense insurance, the regulators, insurance companies, and agents must work as one team.
v. Regulatory Oversight:
Independent institutions are vital in the insurance industry because they safeguard the interests of the clients and prevent fraudulent activities. They can:
- Enforce Stricter Regulations: Introduce and enforce higher ethical standards witnessed in the sale and advertising of final expense insurance to avert adverse effects on vulnerable groups.
- Increase Transparency Requirements: Policies should contain terms and conditions written in clearly understandable language because according to the current situation, policyholders are not Knowledgeable about the policy terms.
- Monitor and Penalize Misconduct: This involves extensive surveillance of the selected market concerning unethical acts and appropriate punishment of the culprits including the companies and their respective agents.
Insurance Companies:
Insurance companies also play a major responsibility when it comes to ethical practices in their insurance business. They can:
- Promote Ethical Training: Offer intensive training to the agents in ethical selling and the need to be fair to the consumers.
- Implement Ethical Sales Policies: Implement legislation and guidelines that safeguard the client’s interest, for instance, a suitability regime in place and a ban on high-pressure sales techniques.
- Create Affordable Products: Genuinely cheap Design products of great value to their income level, in case your targets are the poor.
Individual Agents:
If this were to happen, it would directly affect the consumer, thus insurance agents are in the direct line of duty. They must:
- Commit to Ethical Standards: Be truthful, ethical, and professional in dealing with the clients and ensuring that all the contracts and agreements are also ethical.
- Educate Themselves and Clients: Be up to date with information on the products they offer and make sure that the information they give the clients is correct.
- Act in the Client’s Best Interest: Always act mainly in the client’s best interest by making sure that the policy to be sold is appropriate and valuable.
Conclusion:
When it comes to the sale of final expense insurance, it is essential to consider a broad spectrum of ethical considerations. These include the need for transparency and honesty in dealings, the fair and respectful treatment of vulnerable populations, and the ethical conduct of sales agents. Upholding ethical practices within this industry is vital for safeguarding consumers and upholding the overall integrity of the insurance sector.
By fostering a culture of ethical behavior, promoting transparency, and prioritizing the best interests of clients, the industry can provide valuable services to those in need while upholding the highest ethical standards. Regulatory bodies, insurance companies, and individual agents all have roles to play in achieving this goal, creating a fairer and more trustworthy market for final expense insurance.