RISCARIO INSIDER: IS YOUR INSURANCE POLICY AN ABANDONED ORPHAN?

May 24, 2014

IS YOUR INSURANCE POLICY AN ABANDONED ORPHAN?

It’s not your fault.

If your insurance advisor becomes unwilling or unable to provide service, you have an orphan policy. What happened? The causes vary. Advisors might:

leave the business: do something else or retire
switch firms: prohibited from taking the clients
stop doing business with an insurer: might lose their contract
have poor processes: makes servicing more difficult
avoid conflicts: the policy may have under-performed and created friction
prefer selling: dislike providing service

Whatever the cause, you pay for service you no longer get.

An Overlooked Cause

Your advisor may be active in the insurance world but is that enough? You might be on the path to the orphanage without knowing. The changes take place gradually as the service you get drops and possibly stops. You’re not alone.

Since life insurance usually pays most of the compensation at the time of sale, there is no strong financial incentive for advisors to provide ongoing service. Some products are “lapse-supported”, which means the insurer makes a profit when you cancel. Who’s on your side?

Another complication

Some insurance policies are “vested”. That means the old advisor keeps getting paid even if they tell the insurer that they won’t provide any more service. This arrangement protects that advisor at your expense. Why would another advisor help you for free?

There’s another possibility. Your old advisor may sell policies to another advisor (e.g., for two or three times the renewal compensation). Now your new advisor has more incentives to pay attention to you.

What Makes You Valuable?

The main reason you’re valuable to a new advisor is for new business. That’s reasonable. Beside life insurance, people often need more protection against the costs of

disability (unless you’re retired)
critical illnesses
long-term care (especially during retirement)

Even if the advisor isn’t paid, you may like the service enough to provide referrals.

Tip: Be wary if the new advisor attempts to replace your current coverage with new policies. That leads to more compensation but you may get better results by modifying your current policies.

The Transition

If you’re transferred to another advisor, how would you know? The insurer and your old advisor may not inform you. If you get a letter from a stranger claiming to be your new advisor, how can you be sure?

You can check them out online (e.g., LinkedIn) and chat on the phone. You might phone the insurance company. When you’re satisfied, why not meet? Insurance requires maintenance. Your new advisor may be more diligent and consistent than the old one.

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