Misleading Terms

As we noted earlier, a fundamental teaching technique uses concepts that are understood to the individual to explain concepts that aren't.  Using that teaching technique, we might use phrases like "similar to" or "very much like."  Since selling involves a teaching element, we may sometimes use this same technique when we are selling insurance -- particularly since insurance tends to be a somewhat complicated subject for many customers.  However, this intention to make insurance clearer and its benefits more obvious to our prospects 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.  Eventually, the customer may discover that the insurance is not identical to the product used in the analogy.  Frequently the customer then feels that the insurance product has been misrepresented and that he or she has been misled.  

Since the ethical requirement in the insurance business calls for the full and candid disclosure of everything that is material to the sale, the agent needs to avoid any terms that might tend to obscure the facts.  It is both ironic and unfortunate that the terms that might have been used to help clarify the insurance product at the time of the sale are often viewed as obscuring those facts the agent hoped to make clear.  

Since certain terms have a high likelihood of ultimately being misleading when used to describe the features of insurance products, the ethical agent will take pains to avoid them.  These misleading terms are terms that have been used to describe the features of life insurance policies or, sometimes, have been applied to the policies themselves.  

 That communication needs to aid the customers' understanding of the facts as they are and not disguise them is the guiding ethical and compliance principle.  Some of the terms that are most likely to get in the way of properly communicating with customers are:

Account, plan, private pension, program or strategy

when the agent means:

Contribution, deposit, investment or payment

Earnings, profit or return


Account or savings

cash value

Mutual funds

separate accounts

Vanishing premiums

using dividends to pay premiums



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.  The concept has frequently been called "vanishing premiums."  Since premiums really don't vanish in this concept, but 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, there is a tendency of premiums to again be required out-of-pocket when dividend scales are reduced.  The ethical agent will avoid using the term "vanishing premium."

The term "private pension," used when referring to a life insurance policy, is one that has also come under serious criticism.  In a fairly recent lawsuit, a company was sued for unethical sales practices because its agents were selling life insurance policies and calling them "private pension plans."  The settlement in this class action suit amounted to several hundred million dollars.  The problem in the use of the phrase may be obvious once we look more closely at it.  The phrase "private pension" obscured the true nature of the product.  Since the product being sold was a life insurance policy rather than a pension plan, the court considered use of the term to be inherently misleading.  

A word that is intimately associated with insurance is "premium."  An unethical agent that wished to disguise the fact that the product was life insurance might choose to refer to premium in some other way.  Some of the other terms that have been used in the past to refer to premiums include:  


Unfortunately, the use of these terms tends to reduce the clarity of communication and may be unethical.  The heightened awareness of compliance and ethical considerations makes these terms unacceptable.  Instead of illuminating the agent-customer conversation, these terms obscure it.

In summary, misrepresentations, whether deliberate or unintentional, are the root cause of may ethical lapses.  
 The misrepresentation may be in writing, but is more often verbal.  In most cases misrepresentations are unintentional -- the agent believes that he or she is being truthful -- but the agent's ignorance is not a defense against liability arising out of unintentional misrepresentation.  The existing laws that hold agents responsible for misrepresentation are generally based on the premise that agents have an ethical duty to know what they are selling and to present policies in a truthful manner.