Is Whole Life Insurance a Scam?
As its name suggests, whole life insurance is a permanent policy that stays in effect for the policyholder’s lifetime or as long as premium payments are made. Under a whole life policy, when the insured pays premiums, a portion goes towards the insurance cost while the rest builds up as a cash value.
This cash value grows tax-deferred and can even be borrowed against or cashed in during the policyholder’s lifetime. Due to its lifelong coverage and cash value component, it often appeals to those interested in an insurance product that will provide cash value to one day pay the premiums due from the cash value component.
Unfortunately, many brokers sell these products as investment vehicles, claiming the cash value component is a way to build retirement savings. If you think you may be a victim of life insurance scams, an experienced whole life insurance scam attorney can answer your questions and explain the law.
Two main types of whole life insurance exist: variable and fixed.
- Fixed whole life insurance promises a guaranteed death benefit, premium, and cash value growth rate. This type ensures predictable growth and is ideal for individuals who seek stability.
- Variable whole life insurance allows policyholders to invest cash into various sub-accounts, such as bonds or equity funds. While this variation could yield higher returns, it also introduces more risk as the cash value is subject to market performance.
These products, sometimes called LIRPs (Life Insurance Retirement Plans), are sold to fund an individual’s retirement using the policy’s tax-free loans. They involve high premiums, commissions, and fees and are often sold to the public by brokers who do not adequately explain the costs and tax implications.
One Form of Life Insurance Scam: Transitioning Investments into Variable or Fixed Whole Life Policies
Unfortunately, some unscrupulous stockbrokers exploit their clients’ trust and lack of knowledge, convincing them to transition their existing investments into variable or fixed whole life insurance policies. They often paint a rosy picture of appealing benefits such as tax-free growth, guaranteed returns, and high dividend potential while downplaying the associated risks and costs.
Stockbrokers might also assert that these policies are safer and more lucrative than traditional investments. This deceptive practice can result in clients liquidating their stocks, bonds, or mutual funds, thereby losing potential returns. Even worse, once the switch is made, policyholders may be trapped in contracts with high surrender charges and subpar returns. This is one crucial way investors can fall prey to whole life insurance scams.
Life Insurance Scams Involve a Breach of Fiduciary Duty
Stockbrokers are held to a legal standard known as a fiduciary duty, which requires that they act in the best interest of their clients. The duty includes providing accurate information, offering suitable investment advice based on the client’s financial situation and goals, and avoiding conflicts of interest.
When a stockbroker persuades clients to transition investments into whole life insurance policies, using misrepresentations that these policies are the most suitable option for their financial goals, they may be breaching their fiduciary duty. This harmful practice results in clients missing potential returns from more suitable investments and can lead to significant financial losses due to the high costs and surrender charges associated with whole life policies.
What Victims of Whole Life Insurance Scams Can Do
Securities fraud attorneys like the team at Oakes & Fosher actively bring arbitration actions through the Financial Industry Regulatory Authority (FINRA) against stockbrokers and brokerages who violate their fiduciary duty to clients. This arbitration is a legal recourse for investors who are misled into paying for whole life insurance scams. The arbitration process allows swindled investors to seek compensation for their losses.
By representing clients in their arbitration cases, our whole life insurance scam lawyers strive to hold unethical stockbrokers accountable for their actions and secure financial reparations for injured parties. It’s important to note that although investors are allowed to represent themselves, the FINRA process can be complex and technical. Our skilled FINRA arbitration lawyers can guide you through the process, ensure your case is properly presented, and fight for the compensation you deserve.
