In the life insurance and annuities industry, credibility is everything. It’s the foundation of the trust that clients, insurance carriers, and underwriters depend on to grow your business. That credibility can be shattered in an instant.

Every advisor needs to do their due diligence when it comes to every case – that means:

• Making every attempt to verify the information on an application.
• Provide that verified information in a cover letter to the underwriter.
• Financial statements should be acquired if possible.
• Net worth should not be taken for certain based on what the applicant says without providing proof.
• The advisor is responsible for verifying the accuracy of the information to be used in underwriting.

Failure to do your due diligence might result in denial of business from insurance carriers, a lawsuit, loss of credibility, and other unexpected results.

Lawsuits happen. Take the case of American General Life Insurance Company v. Diana Spira 2005 Irrevocable Life Insurance Trust, Aaron Azrylewitz, as Trustee, and Simon Spira, for example. General American issued a policy on December 15, 2005 on the life of Diana Spira, an 83-year-old woman for $5,000,000. Mrs. Spira died within two years of issue.

The claim was investigated and it was concluded that the net worth and income on the application were not verified. Even though, as part of the underwriting process, two third-party inspection companies stated in their financial sections that the applicant failed to provide proof of income in net worth.

At one point, income and asset figures were reported over the telephone by the applicant’s husband and the term “declined” was used in the report for other unearned income, stock/bonds, and cash rows. The report showed that the income and net worth were substantially less than what was reported on the application.

The end result? American General filed suit asking to have the policy voided and for a summary judgment. Which is used only if it can be proven that – based on all of the facts – there is no need for a trial. The owner of the policy countersued for summary judgment to have the claim paid.

The judge denied both motions. The court found that it was clear that the defendants had provided false information that would have supported American General’s assertions. However, because American General did not have to (and had not in the past) make underwriting decisions based strictly on the Swiss Re guidelines, it could not prove that it would have acted otherwise based upon the information at hand. The case has been set for trial.

In conclusion, you have a moral obligation to protect each and every one of your clients and their families. However, you are doing a disservice to yourself, insurance carriers, and your clients if you don’t verify the information you provide in each and every application.