Redeeming a policy for the benefit of one spouse
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Mr. and Mrs. Insured purchase an insurance policy you recommended. Three years later, Mr. Insured phones you asking to modify the couple’s policy for personal reasons, so that Mr. Insured would become the sole policyholder.
As the couple’s advisor, you respond to his request and suggest that you come to the couple’s house to sign the form and have a quick discussion. The couple had come to an agreement in advance. Mrs. Insured didn’t have any questions and understood that her spouse wanted to pay the entire premium and take care of this insurance himself. She was a bit distant, but fully in agreement with the decision her partner had made.
The visit proceeded smoothly and everyone was respectful. By the end of the meeting, Mr. Insured’s request was signed by both policyholders. That very day you submitted the request to the insurer, who quickly made the change.
A few weeks later, you receive a redemption request for the same policy from Mr. Insured. He explains that his insurance plans have changed and that he will be coming to see you shortly to update “all his coverage”, but that for the time being, he wants to redeem this policy. As requested by your client, you submit the redemption request to the insurer and Mr. Insured receives—as provided for in the contract—an amount of $6,500, which is the redemption value of his policy. Suspicion creeps in: did Mrs. Insured, who is no longer insured, know that the policy had a large redemption value which up until a few weeks prior she had held jointly with her spouse?
You are probably right to have doubts, but perhaps you should have entertained this line of thought when you met with Mr. and Mrs. Insured? Discussing the insurance coverage without mentionning the redemption value was unfortunate for the wife.
As you know, before the policy holder was changed, both spouses owned the policy. Did you check with Mrs. Insured that she completely understood the consequences of the transaction before she signed the request to modify their insurance policy? If not, Mrs. Insured would have ample reasons to become Mrs. Incensed. And to file a complaint against you…
This scenario was inspired by a decision of the CSF disciplinary committee (CD00-1200), in which an advisor learned that the wife’s signature on a request to modify the policyholders had been falsified. Additionally, she thought she still had a current insurance contract, but her husband had redeemed it. Even if you are dealing with a seemingly united couple, you should always treat partners as two individual clients and never assume that the two are transparent with each other. You have the obligation to give both clients all of the information related to their requests and ensure that they fully understand the consequences.
