Why Terms Mislead
A fundamental teaching technique uses familiar concepts to explain unfamiliar ones. Since selling involves a teaching element, agents may sometimes use this technique when selling insurance — particularly since insurance tends to be a complicated subject. However, this intention to make insurance clearer may have unintended and serious adverse consequences.
In many cases, the customer remembers only the analogy and may believe the insurance product is identical to the product to which it was compared. When the customer eventually discovers the difference, he or she frequently feels that the insurance product has been misrepresented.
Common Misleading Terms to Avoid
The following terms have a high likelihood of ultimately misleading customers when used to describe insurance product features. The ethical agent will take pains to avoid them:
| ✕ Instead of saying… | ✔ Use the correct term… | |
|---|---|---|
| Account, plan, private pension, program or strategy | → | Policy |
| Contribution, deposit, investment or payment | → | Premium |
| Earnings, profit or return | → | Dividends |
| Account or savings | → | Cash value |
| Mutual funds | → | Separate accounts |
| Vanishing premiums | → | Using dividends to pay premiums |
| Tax-free | → | Tax-deferred |
Specific Problem Terms
A phrase that is often the cause of customers claiming unethical sales practices involves the payment of life insurance premiums through the use of policy dividends. Since premiums don’t really “vanish” — they are simply being paid by dividends and the cash value of surrendered dividend additions — the use of the phrase has been characterized as misleading. To make matters worse, premiums may again be required out-of-pocket when dividend scales are reduced.
The term “private pension,” used when referring to a life insurance policy, has come under serious criticism. In a notable lawsuit, a company was sued for unethical sales practices because its agents were selling life insurance policies and calling them “private pension plans.”
An unethical agent wishing to disguise the fact that the product is life insurance might refer to the premium by another name. Terms that have been used in the past to refer to premiums include:
The use of these terms reduces the clarity of communication and may be unethical. Instead of illuminating the agent-customer conversation, these terms obscure it.
Misrepresentation — Intentional or Not
Misrepresentations, whether deliberate or unintentional, are the root cause of many ethical lapses. The misrepresentation may be in writing, but is more often verbal.