Why Life Insurance Advertising Looks Different, and What the Rules Are Trying to Protect You From

Advertising is legal

A phone company can say its plan beats everyone else's and let you decide. A shoe brand can sell a feeling. Life insurance ads rarely look like that, and people sometimes conclude that insurance cannot be advertised at all.

It can. Insurance companies and licensed producers advertise every day. What is different is that the advertising is regulated. There are rules about what may be said about a policy, what has to be said alongside it, and who is responsible when an ad misleads. This article explains those rules in general terms. It is not legal advice, and the details differ from state to state.

Why it is regulated

Most products can be judged after you buy them. You find out quickly whether the phone works. A life insurance policy is a long contract whose main promise is tested once, after the person who bought it is gone. The people relying on it cannot go back and ask what was meant.

That makes the description of the policy at the time of sale unusually important. If the benefit is overstated, or a limit is left out, the mistake may not surface for decades. Regulation exists to make the description accurate while there is still time to choose differently.

State licensing

Insurance in the United States is regulated mainly by the states. Each state has an insurance department, and each state licenses the people who sell insurance to its residents. A producer generally needs a license in your state for the line of insurance being discussed, and an appointment with a carrier before placing that carrier's products.

The National Association of Insurance Commissioners publishes model laws and regulations that states can adopt, in whole or in part. Two of them shape most insurance advertising rules: the model regulation on advertisements of life insurance and annuities, and the Unfair Trade Practices Act. Florida's version of the unfair practices law, for example, lists misrepresentations and false advertising of insurance policies among the acts it prohibits. Your own state's rules may differ in wording and detail. The NAIC keeps a directory of every state insurance department.

Product advertising and carrier approval

Under the model advertising rules, an insurer is generally held responsible for advertisements of its policies, whoever wrote them. That is why carriers usually require a producer to submit any advertisement that names the carrier or describes one of its products before it is used.

It is also why a lot of broker advertising is educational or general. An ad that explains what term insurance is does not describe a specific company's policy. An ad that names a product, a benefit amount or a rate does, and it needs to be accurate, complete and usually approved. When you see a specific claim with no company name attached, that is worth a question.

Misleading claims

The rules are aimed at a familiar list of problems:

• describing a benefit without the exclusions, reductions or limits that apply to it;
• words such as "all", "full" or "unlimited" where the policy does not support them;
• comparisons with other policies or other financial products that leave out what matters;
• describing a life insurance policy as if it were a savings account, an investment or a retirement plan;
• statistics or testimonials that cannot be supported;
• statements about taxes that go beyond what the law says.

On that last point, the accurate version is narrower than the slogan. Death benefits are generally excluded from a beneficiary's federal gross income, subject to exceptions. Cash value generally grows tax deferred under current federal law. Withdrawals and loans can have tax consequences, particularly on lapse, surrender or modified endowment contract status. The IRS publishes a plain summary of how life insurance proceeds are treated.

Illustrations versus guarantees

For permanent policies you will usually be shown an illustration: a year by year projection of premiums, cash value and death benefit. An illustration has two kinds of numbers. One set reflects what the contract itself commits to. The other reflects assumptions, such as a dividend scale or a credited interest rate, that the insurer can change.

The second set is a projection. It is not part of the contract and it is not a forecast. Any guarantees that do exist are backed by the claims-paying ability of the issuing insurer, not by the person showing you the page. A fair presentation shows both sets and says which is which. If you are only shown the favorable one, ask for the other. Our article on indexed universal life goes through an illustration line by line.

Government affiliation rules

Insurance advertising generally may not use names, seals, symbols or wording that suggest a connection to a government agency or program. The same idea applies to implying that an offer comes from your lender or mortgage servicer when it does not.

This matters most for mail that looks official: a notice about your "benefits", a reference to your mortgage, a deadline. If it asks you to call about coverage, it is advertising. Cornerstone Capital is not affiliated with any government agency, Medicare, Social Security, lender or funeral home, and says so on every page.

Phone, text and email marketing

Separate federal rules cover how businesses may contact you. The Telephone Consumer Protection Act, enforced by the Federal Communications Commission, restricts autodialed and prerecorded calls and texts and in many cases requires your prior consent. The Federal Trade Commission's Telemarketing Sales Rule covers telemarketing practices and the National Do Not Call Registry. Commercial email has its own federal rules, including a working way to unsubscribe.

In practice: you should know what you agreed to, consent to calls or texts should not be a condition of buying anything, and a request to stop should be honored. On this site the consent box is never checked for you.

Variable life insurance and variable annuities are securities as well as insurance. Communications about them are also subject to securities rules, including FINRA Rule 2210, and they are sold by people with a securities registration in addition to an insurance license. Cornerstone Capital's content does not cover variable products.

How consumers verify a producer

You can check a producer yourself in a few minutes. Ask for the National Producer Number, then look it up through the National Insurance Producer Registry or your state insurance department's license search. Florida residents, for example, can use the Department of Financial Services licensee search. Confirm that the license is active, that it covers life insurance, and that the name matches.

We wrote a short guide to verifying an insurance agent's license, and our Licenses page lists the official lookups.

Questions to ask

When you see an insurance advertisement, or sit through a presentation, these questions do most of the work:

• Which company issues this policy, and what type of policy is it?
• Which of these numbers are in the contract, and which are assumptions?
• What does this policy not cover, and when could the benefit be reduced?
• What does it cost, for how long, and what happens if I stop paying?
• Are you licensed in my state, and what is your National Producer Number?

A producer who is comfortable with those questions is a good sign. The rules exist so that the answers are available before you decide, not after.