Advisor Beliefs Regarding Effective Life Insurance Disclosure

Abstract

Since 1997, and where designated, state regulation dictates the content and structure of the life insurance illustration. Based on the model regulation the National Association of Insurance Commissioners adopted in 1995, illustrations have a mandated purpose of to educate and protect the consumer during and after purchasing life insurance. Using data collected in 2012 through an online survey targeting financial advisors providing life insurance advice, we examine advisor beliefs about life insurance illustration effectiveness and find that over one-third of survey respondents believe the mandated illustration is a less than effective consumer education and protection tool while less than 15 percent rated the tool as more than effective. We find the agency relationships between advisors and insurers as well as between advisors and consumers significantly impact advisor opinions about illustrations. We find no significant evidence that advisor compensation method shapes their opinions about illustration effectiveness.

Keywords: Life insurance disclosure, life insurance illustration, agency theory, NAIC regulation

JEL Classification: G22, G28