Life Insurance Brokers Need DOL Attention

What You Need To Know

– Career agents become statutory employees of the life insurer.
– Independent producers do not qualify for statutory employee status.
– An independent agent says this conflicts with the customers best interest.

U.S. Department of Labor headquarters in Washington. Credit: Adobe Stock

Today, under Internal Revenue Service guidelines, career agents are considered statutory employees of the life insurer.

Independent brokers do not qualify for statutory employee status.

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The IRS rules end up giving career agents an unfair advantage over independent agents.

Certainly, independent agents are small business owners, but they also need help with buying health insurance. They should be able to do that without losing their independence from the life insurance carriers.

Lori Chavez-DeRemer, secretary of the U.S. Department of Labor, can now address this issue.

During her confirmation hearing in February, she discussed the needs of small business owners.

She said she would work with members of Congress to craft legislation to provide independent workers more affordable health care and retirement benefits. She also stated that she would refrain from implementing rules that strip independent contractors of the flexibility they need to provide for their families and contribute to the American economy.

Why this matters: Insurance companies use subsidized health benefits to influence their sales agents, and that undermines the best interests of consumers. This unfair leverage encourages career sales agents to market non-competitive and unnecessary products to consumers, so that the career agents can ensure that they qualify for crucial benefits each year.

When I joined Equitable in 1992, I was introduced to this provision. At the end of the year, I received a W-2 for Equitable policies I sold and a 1099 for policies sold through other carriers.

It’s now 2025, and the world and industry dynamics have shifted. We now have intermediaries like independent marketing organizations, brokerage general agencies and life insurance technology companies that provide an open carrier platform, allowing a focus on customer needs. Unfortunately, producers seeking benefits must conform to a culture where customer priorities are secondary, making annual qualification for benefits the primary focus.

A changing market: In 1992, consumers had a choice between term life, whole life and universal life insurance, and, if the agent had a securities license, variable life insurance.

The sales illustrations usually did not exceed 20 pages.

Today, with the introduction of complex products, sales illustrations often reach 40 pages. Why?

I consider life insurance one of the most socially responsible product solutions for protecting families from the untimely death of the breadwinner.

What would happen if the life insurance industry did not exist? Would the financial burden be paid for by cities, states or the federal government?

But some of the policies consumers are buying are not right for those consumers. According to LIMRA, about 30% of life policies fail.

Life insurance is a protection instrument. It’s a love sale. Buying life insurance is a way to complete your promise to your loved ones that you would take care of them.

Sometimes, however, life insurance policies do not help the buyers keep their promises to their loved ones.

Life insurance policies can fail — in other words, lapse when customers still need life insurance — when customers who look at policy performance illustrations do not understand that “non-guaranteed” means non-guaranteed.

Buyers of indexed universal life insurance, in particular, may not understand that the effects of their actions on their “permanent, “cash-value coverage are separate from the impact of investment market fluctuations on their coverage.

Think of the cash value policy in a traditional universal life or IUL policy as a car’s gas tank. When the cash surrender value drops to a level that cannot keep the policy going, the policy collapses and fails.

Policy rules may affect how policy loans, loan interest obligations, missed premium payments and missed loan payments will affect the coverage. The policy performance illustration may reflect those rules.

Additionally, some carriers have raised the cost-of-insurance charges for universal life policies to make up for a low-interest environment. Increases in COI charges can decrease a “permanent” policy’s cash value and affect whether the policy stays in force or lapses.

If a client doesn’t follow the rules used in the illustration, or fails to compensate for increases in COI charges, the coverage in the illustration may end before the client dies.

When a life insurance policy fails, that means that the risk your clients thought they solved is still there. The clients’ loved ones are left to deal with the fallout from the clients’ inability to keep their promises.

In some cases, that could be due to career agents selling the wrong policies to the wrong people simply because they’re trying to qualify for health insurance.

How can DOL and IRS help consumers where they need it?

The IRS website now states:

“A full-time life insurance sales agent whose principal activity is selling life insurance, annuity contracts, or both, primarily for ONE LIFE INSURANCE COMPANY” qualifies for statutory employee status.”

This provision made sense when life insurance carriers controlled the distribution of life insurance policies and annuity contracts.

Now, with the expansion of independent sales organizations and growth in sales of complex products, we need to make sure the statutory employee definition supports sales professionals who want to sit on the clients’ side of the table, not on the life insurance carrers’ side.

The solution is to create a level playing field where independent agents — small business sales professionals — can advise clients without facing pressure to sell a life insurance carrier’s own, proprietary products.

One way would be for the IRS to make it easier for IMOs, BGAs and life technology companies to provide the health insurance for independent agents.

The life insurance industry sales force is aging out and being replaced by young professionals looking to protect families. The problem is that they can’t adequately protect their families without access to health insurance and employee benefits.

Howard Wolkowitz is a life insurance producer at LifeInsureAssure.com, the author of The Health of Your Wealth, and a consultant, speaker and trainer. He can be reached on LinkedIn.

U.S. Department of Labor headquarters in Washington. Credit: Adobe Stock

 

Article originally posted on Think Advisor.

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