Insurance industry studies indicate that approximately 5% of E&O claims involve the sales or administration of life insurance. While they are relatively rare, when those claims occur they can be significant. The majority of claims filed involve common errors that are easy to avoid with proper attention to detail and documentation.
The most common mistake made by financial representatives is the failure to administer the application process diligently. They often fail to exercise due care in assisting their clients to answer the questions on the application - i.e. they fail to make sure that each question is answered correctly and accurately. Failure to do so may result in an E&O claim by the intended beneficiary if payment is denied by the carrier.
Financial representatives also often fail to recognize answers that do not correctly represent a client's health status. Questions such as "Have you ever been diagnosed with an eye, ear, nose or throat disorder?" are often answered in the negative by "ordinarily healthy" applicants. A long list of "no" answers should raise an alarm if the financial representative is paying attention. Often both the representative and the client fail to consider that simple issues such as a prescription for glasses or allergy treatment are relevant from the carrier’s perspective.
Another common mistake is the failure to maintain documentation of all communication with the client. For every meeting with a client a record should be made of who said what and what they the parties agreed to do. Financial representatives are often targeted for lawsuits by beneficiaries whose claims are denied, and must be prepared to defend themselves with proper documentation.
While you can be sued by anyone, you can make it harder for them to make a case against you by attention to detail and proper documentation.