State Guaranty for Insurance

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army13A's picture
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Joined: 2009-03-21

I heard from my buddy at another firm that you're not supposed to mention the State Guaranty (NOLHGA) with insurance products.  Anybody know the general rules regarding this? I completely understand it might differ from firms due to compliance but why the hell wouldn't you tell a client about it if it's providing them more knowledge and education regarding the safety of their money? 

BerkshireBull's picture
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Joined: 2009-06-10

You can tell them anything you want, I just wouldn't give them anything in writing about the insurance guarantee fund   You technically aren't supposed to be talking about it though, probably because regulators don't want it being used as an alternative to due diligence in choosing a healthy insurer by the consumer.

anonymous's picture
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Joined: 2005-09-29

army13A wrote:I heard from my buddy at another firm that you're not supposed to mention the State Guaranty (NOLHGA) with insurance products.  Anybody know the general rules regarding this? I completely understand it might differ from firms due to compliance but why the hell wouldn't you tell a client about it if it's providing them more knowledge and education regarding the safety of their money? 

 
We'll see if I can voice my opinion without too much rambling.
 
First of all, when customers/clients do things on the basis of guarantees backing up the promises, I believe that it hurts the industry.  The FDIC is a great example of this.  Jim wants a 12 month CD.  Bank ABC is a very strong bank and pays 2%.  Bank DEF is a weak bank and pays 5%.  Bank ABC won't be able to sell any CD's.  Because of FDIC, Bank DEF will get all of the business.  If Bank ABC wants to compete, they'll have to pay more.  They are strong because they don't take too much risk.  In order to pay 5%, they will need to take on much more risk.  There is a reason why very strong banks aren't nearly as financially secure as mediocre insurance companies.
 
NOLHGA is real, but it's also B.S.  Sure, there are guarantees, but it's not like there is a bank account just sitting there with money to pay the claims if a bunch of carriers go bankrupt.   What happens when Army13A dies with a $1,000,000 life insurance policy from a company that has just become insolvent in a state with a $300,000 limit?  His beneficiaries will collect $1,000,000.
 
Life insurance is nothing more than a promise.  Once this promise gets broken with any company, there is no longer a life insurance industry as we know it.
 
The simple answer as to why you can't talk about it is that its existence is terrible for the industry if it causes people to buy based upon rates while ignoring company strength.   

snaggletooth's picture
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Joined: 2007-07-13

iceco1d wrote:I've always wondered about this too.  It's a state regulation, not a compliance rule.  But I always wondered how strict it was?  Obviously, you aren't supposed to ADVERTISE it...but if you are telling a client about fixed annuity rates vs. a CD rate, and they say, "is it guaranteed?"  WTF are you supposed to legally tell them?  Are you supposed to lie and say it's ONLY guaranteed by the insurance company?  I just tell them...not as a sales point, but just as a fact.

 
I've called my state insurance commissioner's office and asked what I can say about the fund.  They said there was no issue reporting the facts when asked how the client's money is guaranteed.
Also, I've given the phone number of the insurance commissioner's office to a couple prospects and told them to call and ask if their money was guaranteed.  I don't do that often, but in the right case I will.  They clearly tell the client their money is guaranteed up to the limit.

Roxie's picture
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Joined: 2009-10-19

Seems like I remember from my licensing that using the guaranty association as an inducement to a sale was not allowed.  If the client had an annuity and asked questions or brought it up on their own you could comment.  If the military is don't ask, don't tell, this was don't tell unless they ask.

anonymous's picture
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Joined: 2005-09-29

I believe that Roxie is correct on this one.  We can answer questions about it, but we really shouldn't be talking about it in a sale's situation, especially if it is being used to help make a sale.

army13A's picture
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Joined: 2009-03-21

Roxie wrote:Seems like I remember from my licensing that using the guaranty association as an inducement to a sale was not allowed.  If the client had an annuity and asked questions or brought it up on their own you could comment.  If the military is don't ask, don't tell, this was don't tell unless they ask.This makes sense.  I usually go with NY Life and just talk about their background.  "Been around for over 160 years, AAA rated, etc."  Usually this does it but you always have the jackass who wants to mention AIG and then I have to respond with: "Ok, so if NY Life went under and pigs started flying . . ." Then I mention the guaranty fund. 

anonymous's picture
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Joined: 2005-09-29

army13A wrote: Roxie wrote:Seems like I remember from my licensing that using the guaranty association as an inducement to a sale was not allowed.  If the client had an annuity and asked questions or brought it up on their own you could comment.  If the military is don't ask, don't tell, this was don't tell unless they ask.This makes sense.  I usually go with NY Life and just talk about their background.  "Been around for over 160 years, AAA rated, etc."  Usually this does it but you always have the jackass who wants to mention AIG and then I have to respond with: "Ok, so if NY Life went under and pigs started flying . . ." Then I mention the guaranty fund. 

 
If NY Life went under, the guaranty fund would be useless. 

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