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Unsuitable selling of Universal Life Insurance Policies

October 10, 2023

Unsuitable selling of Universal Life Insurance Policies

As financial planners who put our clients first, we’re happy to see the industry begin to dig deeper into unsuitable sales of various life insurance products. The Financial Services Regulatory Authority of Ontario (FSRA), who is the regulatory body for life and health insurance agents in Ontario, reviewed files from 3 agencies who operate under the tiered recruitment model. 

In FSRAs review, it was found that 80% 2 of Universal Life (UL) policies sold by these companies did not align with consumer’s needs. 

In our experience, these companies continue to sell unsuitable life insurance products to consumers, typically centered around the ability to generate higher commissions for the salesman (and their superiors) – with little to no regard on the impact it can cause the consumer. (For perspective, the commissions received on the sale a whole life or universal life policy are substantially higher than commissions received on a term insurance policy).

More specifically, the analysis revealed: 

Misaligned, Misleading, or Incomplete Retirement Planning Advice, with many instances resulting in the customer being sold and overfunded UL for the purpose of retirement savings, yet most didn’t even have an RRSP or TFSA. 

No Life Insurance Need Identified, and/or Boilerplate Needs Analysis or Recommendations. 80% of the files did not demonstrate a specific life insurance need, or gave a cookie cutter one size fit’s all solution with no rational for the recommendation. 

Misleading or Unrealistic Assumptions. In some instances, policy illustrations used misleading, unrealistic assumptions, and did not sufficiently highlight the underlying risk to the client, nor document discussing lower risk alternative strategies.

Universal life insurance is “a complex and specialized product”. In some cases, it can be the right solution, just not for most Canadians. 

If you have been pitched these policies, considering them, or are unsure if a policy you own is actually right for you, please reach out to us and we’d be glad to assess it’s fit to you. 

All of our financial advisors are also life insurance licensed, and being transparent with recommendations is essential for building trusted relationships with our clients. 

The articles in full can be found at: 

  1. Review of multi-level-marketing MGAs results in enforcement for 65 life agents
  2. Observed Practices in the Distribution and Sale of Universal Life Insurance 
  3. Life Agent Thematic Examinations: Tiered Recruitment Model MGAs

It is our strong belief that to be successful in reaching your goals it is necessary to have a plan in place and to follow a process. That is, to make your life and financial decisions not by accident but by design.

Remember, successful people ACT towards the future they want!

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