Life Insurance Fraud Attorney

Life insurance is not only a way to protect your family in the event of a serious accident, sickness, or catastrophe. For many, it is also a smart financial product that can contribute positively to your portfolio. A financial advisor can help you select the right life insurance for your circumstances. However, as experts in a complex field, some financial advisors also make recommendations that primarily serve their own interests.

If you have been taken advantage of by a financial advisor, a life insurance fraud attorney may be able to help you seek relief. Wolper Law Firm has a 99% success rate in recovering funds for defrauded clients. Contact us today for help with life insurance fraud cases.

Why Do Financial Advisors Sell Life Insurance?

Life insurance is a key part of a person’s overall financial planning, and an advisor can play a useful role in helping you make decisions accordingly. A financial advisor who helps you select the appropriate life insurance policy is acting responsibly, helping protect your family and your wealth in the event of a disaster. However, financial advisors selling permanent life insurance will benefit to some degree from your investment. This is not to say that all financial advisors have an ulterior motive, but only that you, as a client, should be aware that there are financial incentives at play that can motivate your advisor’s recommendations.

Financial advisors sometimes recommend whole life insurance, VUL, and UL because the commission structure is lucrative. Insurance companies will pay a significant percentage of the first-year premium and a trailing commission for each year thereafter. For this reason, financial advisors recommend that clients “roll over” IRA accounts, annuities, and other investment accounts into these permanent insurance products so that there is a large, lump-sum contribution from which their commission is calculated.

What is Life Insurance Fraud by Financial Advisors?

High commissions can be a powerful incentive to commit fraud. When your advisor misrepresents the risks or benefits of a life insurance product to serve their own ends, they are committing fraud. Most advisors have a fiduciary duty to only recommend appropriate financial products to their clients. The profit motive should never come before your own best interests as an investor.

Life Insurance Fraud Red Flags

The following can be indicators that your advisor is committing or attempting to commit life insurance fraud. It’s important to know how to recognize these red flags early and halt the damage before it goes too far. If you have concerns or have noticed any of the following behavior from your own financial advisor, speak to a life insurance fraud lawyer for a consultation.

They Use High-Pressure Sales Tactics

An advisor who insists on a quick decision, doesn’t let you do your own research, or who is defensive or evasive when you ask questions may be trying to scam you. Make sure you fully understand what you are investing in with a financial product. An advisor who is above board will want to help you assess both the pros and the cons. They will leave you time to consider and can provide documentation to back up their claims.

They Put Too Much Emphasis on Permanent Life Insurance

If an advisor insists that you purchase a permanent life insurance policy without even addressing term options, it may be a red flag. You should be especially careful if your advisor refuses to disclose their commission.

They Claim a Policy Can Generate “Income”

Financial advisors may claim that you can generate “income” from accrued cash value under a permanent life insurance policy. This is a misleading statement. Permanent insurance products do not pay income. In order for investors to access the cash value, they must take a loan against the policy, which has to be repaid. If the loan is not repaid, it becomes a liability against the death benefit.

Moreover, permanent insurance products are designed so that the cash value can eventually help pay some or all of the premium payments required to maintain the insurance policy. If there is a policy loan that is not repaid, the cash value will be insufficient to pay future premium payments. If this occurs, investors will have to contribute more money to the permanent insurance products or risk a complete lapse in the policy and loss of their principal investment and death benefit.

In other words, taking policy loans for so-called “income” will inevitably cause the policy to erode in value and become much more expensive to sustain. It will also cause the policy to lapse if the loan is not repaid or additional premium is not added.

They Want You to Switch From An Existing Policy (And They Don’t Mention the Risks)

Insurance twisting and insurance churning are two common methods that untrustworthy advisors use to make a quick buck, which involve convincing clients to change an existing policy unnecessarily. Your advisor should help you fully review the risks of switching policies. There can be a lapse in coverage, surrender charges for canceling, or other downsides to the change. In extreme cases, advisors have been known to recommend that investors secure policy loans in order to establish new insurance policies. This can leave you both in debt and without genuine coverage.

They Suggest Premium Financing a Policy

Premium financed life insurance involves using a third-party loan to pay policy premiums. In this type of arrangement, the lender covers the premiums, and you pay interest on the loan, which is typically repaid after a set period. Ideally, the policy’s cash value growth is enough to repay the loan. This can be a risky strategy, however, because if interest rates rise or the policy underperforms, you may require additional collateral. Failure to meet this requirement can result in default and the lender halting premium payments.

What Are the Types of Life Insurance?

There are different kinds of life insurance for investors’ needs. Some forms of life insurance offer a savings component or other benefits besides simply offering benefits after a death.

Term Life Insurance

The simplest and most common form of life insurance is term life insurance, which provides coverage for a fixed amount of time. The death benefit is also fixed. Once the Term Life Insurance policy reaches its expiration date, the insurance company no longer has an obligation to pay death benefits. This type of life insurance is often best suited for younger individuals, especially those beginning a family, due to its cost-effectiveness.

Whole Life Insurance

Whole life insurance policies are a kind of permanent life insurance, meaning that a client receives coverage for their entire life rather than a set period of time. These policies pay death benefits based on the face value of the insurance policy, plus any appreciation of cash value. In addition to the death benefit, whole life insurance policies have a savings component that will grow, tax-deferred, based on the level of premium payments made by the insured. In order for the cash value to grow, an insured is required to add premium.

Dividends are also paid by the insurance company each year and can be used to either purchase additional life insurance or increase the cash value. Insureds are free to withdraw cash value from their whole life insurance policy in the form of a policy loan. If the loan is not repaid before death, it will become an offset against the death benefits ultimately paid. Whole life insurance might be recommended as part of a larger estate plan to a client looking to build out their financial portfolio.

Universal Life Insurance

Variable universal life insurance (VUL) or universal life insurance (UL) are also forms of permanent insurance that are less expensive than whole life insurance. With VUL or UL policies, insureds have the flexibility to increase or decrease death benefits at any point in time. The VUL and UL policies also have a savings component wherein an insured can accrue cash value. Unlike whole life policies, which have a fixed rate of return, VUL and UL policies can be invested more aggressively so that the cash value increases more quickly. VUL and UL policies are often invested in a stock index or basket of mutual funds. Of course, this exposes the sub-accounts of the VUL and UL policies to market risk and could require the insured to contribute additional premium to keep the policy in force long-term.

UL policies may be some of the most flexible options, but they are also among the most complex. UL policies should be approached cautiously, because they may involve terms or conditions that can leave investors in debt. Additionally, there are certain waivers and riders, such as waiver of cost of insurance, accelerated death benefits, and more, that can be added to UL policies. These may increase their value as an investment tool but decrease their utility overall. UL policies are often recommended to those seeking to promote their long-term financial goals, like putting a down payment on a house, launching a small business, or building up retirement savings.

Indexed Universal Life Insurance

Indexed Universal Life Insurance policies are risky investments that tend to involve more active management and monitoring than simpler whole life insurance policies or other options. Indexed Universal Life insurance (IUL) offers both a death benefit as well as a cash value component that is linked to the performance of an index fund. Unlike other policies, IUL does not pay dividends. A floor protects your investment from market volatility and losses, but earnings are often capped, and you may receive just a percentage of the index’s gain through a participation rate.

For some investors, these downsides are acceptable given the tradeoff for the guaranteed floor and insulation for the cash value of the IUL from market losses. The tax value growth is tax-deferred, as is the death benefit to beneficiaries, which may make it a viable option for those with sizable estates. There is also the potential to access the cash value through loans or withdrawals during the policyholder’s lifetime, meaning that some business owners turn to IULs for coverage. However, IULs are not suitable for most investors. They involve higher lifelong fees that are often concealed during the initial pitch, as well as sizable surrender costs that make them difficult to exit once purchased. Market volatility is still a very real risk with an IUL, despite many salespeople offering cherry-picked projections and unrealistic promises. If the cash value drops too low, which is possible due to rising fees and stagnant index funds, the policy may lapse and leave you and your family without coverage. Any loans taken out against the cash value of the policy in which case are treated as taxable income. The variable cap on gains also reduces the benefit that many policyholders see, even during a strong market, while rising fees and administrative costs reduce overall returns.

IULs are complex financial products that generate high commissions for salespeople who tend to present them as “no-risk” investment vehicles. In actuality, they are complex insurance contracts that can prevent you from recovering the fullest amount possible from an index fund’s rise, while trapping you into an expensive and difficult-to-understand policy.

What Are Your Options If You Have Been Improperly Sold a Life Insurance Product?

If your financial advisor recommended that you invest in permanent insurance products, and you believe that he or she may have sold those products to you without full disclosure of the characteristics and risks, you may be able to recover your investment losses through one of two ways:

• Filing an investment loss lawsuit
• Filing a FINRA arbitration claim

Not every case is an option for an investment loss lawsuit. If you have a case that involves breach of contract, bad faith sales tactics, or life insurance misrepresentation, then you may be able to sue the insurance company involved. A successful case can allow you to recover damages as well as a portion of your lost funds.

On the other hand, FINRA arbitration is often a lower-cost and faster way to resolve a fraud claim involving a registered financial advisor. An arbitration claim takes place before a panel of third-party industry experts. While the process resembles a courtroom trial before a jury, unlike a trial, there is no option to appeal a FINRA arbitration decision. Because of this, it is especially important to work with an experienced investment loss lawyer for cases involving disputed facts or complex claims. At Wolper Law Firm, we can advise you about which pathway forward is best suited to your situation, as well as represent you in either the courtroom or the arbitration process.

Should I Hire a Life Insurance Fraud Lawyer?

You can represent yourself during FINRA arbitration or mediation, but you may also choose to be represented by a life insurance fraud lawyer. These proceedings are complex matters that often involve highlighting different areas of industry regulation as well as similar award decisions. Your brokerage firm will most likely be represented by a team of attorneys who have been hired to protect their interests; therefore, it is often recommended to have your own legal counsel.

It is also highly recommended to obtain professional legal services before embarking upon a FINRA arbitration effort because appealing a FINRA decision can only be done under extremely limited circumstances. It is therefore imperative to present the facts of a life insurance fraud case as accurately and compellingly as possible, as well as to file correctly, in order to maximize recovery. Failing to do so can bar your path to future recovery entirely.

Protecting Yourself From Life Insurance Fraud

According to the Coalition Against Insurance Fraud, the average older American exploited by an insurance scam loses $34,200. Meanwhile, outside analysts report that elder fraud costs around $2.9 billion to $36.5 billion each year. Life insurance fraud also affects younger people, with millennials 25% more likely to report losing money to fraud than people ages 40 or over.

If you believe you may be victimized by a life insurance scam, there is no shame in reporting it. Contact a life insurance fraud attorney to see how you may be able to stop the scam and recover some of your lost funds. You can also work to avoid life insurance fraud scams in the future by:

• Gaining clarity about how fees will be collected. Ask if fees have the potential to change in the future, or if they are set at a fixed rate.
• Pushing back against high-pressure sales tactics. Always do your own research or get a second opinion. Never invest from a cold call or an opportunity that does not give you enough time to form your own opinion.
• Working only with registered and trusted advisors. Research your advisor’s history and licensing online. You can find a record using FINRA BrokerCheck to see if there are previous complaints about their work, and make sure they are a member in good standing.
• Avoiding “too good to be true” offers. Zero-risk options do not exist in the market.
• Understanding tax liability. Even tax-deferred gains, such as from IULs, can be subject to taxation if the policy lapses. Know the risks as well as the possible benefits from any policy that you purchase.

Speak With a Life Insurance Fraud Attorney at Wolper Law Firm

Wolper Law Firm offers skilled and effective representation to investors who have been defrauded by life insurance scams. Our attorneys come from some of the best law schools in the United States and have years of trial experience in financial fraud claims. We bring our precise attention to detail, legal expertise, as well as compassionate representation to each of our clients’ cases. Contact the Wolper Law Firm, P.A. for a free consultation to discuss your legal rights.