How to Avoid Deceptive Sales in the Life Insurance Industry

Deceptive sales in the life insurance industry have long been an issue. Oftentimes, the mis-selling process can lead to financial losses for consumers. However, it is important to note that a company or agent that is licensed and legitimate can avoid these pitfalls.

The Federal Trade Commission (FTC) prohibits deceptive acts or practices in a variety of areas. These include: false advertising, fraud, misrepresentation, omission of material information, and unfair business practices. In order to determine whether an act or practice is deceptive, the Agencies follow a three-part test: it must:

First, a representation must mislead or be likely to mislead consumers acting reasonably under the circumstances. The representation must also have an effect on a consumer’s conduct or decision regarding the product or service.

Second, a consumer’s interpretation or reaction to a representation must be reasonable under the circumstances. Lastly, a misleading representation must be material to the consumer’s purchase or decision.

SS 233.1 List Prices are fictitious. A list price is a manufacturer’s suggested retail price or the price at which a significant number of products are sold in a manufacturer’s trade area. Usually, a manufacturer’s list price will be a reasonable, realistic and nondeceptive price that reflects the price at which a substantial amount of products are sold in a manufacturer’s market area.

Advertisements must clearly state the difference between sale and regular prices. For example, if a store is selling two similar models for $5 each, the sale price must be a price that hasn’t been higher than the regular price in the past three months.

The advertisement must also provide a clear description of the items included in the sale or offer, including how many are in each package and whether the products are new or used. It must also disclose the total cost of each package and the sale price.

Bait-and-Switch tactics are another common form of deceptive sales. These tactics involve a salesperson offering a product that is on sale and then attempting to sell you an upgrade version of the same product at full price. The salesperson then convinces you that the upgraded version is a much better value than the original.

High-pressure sales pitches and quick change tactics are also common deceptive sales techniques. These tactics often involve a salesperson contacting you repeatedly, making you feel uncomfortable or aggravated by the pressure they are putting on you to make a change. They may try to pressure you to change your policy immediately without giving you the chance to do your research.

Scams in the life insurance industry can take different forms, but they generally involve: