Ethical Rules of Disclosure in California

Under California ethics rules, insurance agents are required to deal honestly with their customers. That includes fully disclosing certain facts, particularly those that make a difference in the customer’s decision-making process. Here are a few things that the rules require insurance agents to disclose.

Compensation and cost. Customers should know how much a certain policy or service will cost, and have the right to receive clear, straightforward information on that cost. They should also understand how much an insurance agent or financial planning professional is being compensated, and that compensation should be reasonable and fair. Additional costs tied to certain services and products should also be fully disclosed. Information on compensation can be expressed in a specific or general dollar amount, a range of possible dollar amounts or a percentage, depending on which would be most clear to the insured.

Changes to the financial arrangement. Sometimes circumstances arise that require a change to the pricing of a plan or service. Insureds should be kept informed of these changes in a timely manner. If the initial disclosure included the possibility that an unplanned situation could change pricing, the possibility should be disclosed to the insured.

Conflicts of interest. Ideally, there would be no conflicts of interest—our customers and insureds should be our first priorities. However, sometimes there are conflicts of interest that may encourage an insurance agent to look to interests other than his clients’. If that possibility arises, the insurance agent should disclose this fact immediately to the client. This includes compensation arrangements that make it in the insurance agent or financial planner’s interest to recommend a certain product.

The true nature of the product. The customer should get accurate information about all aspects of a product, including benefits and limitations. An insurance agent should never attempt to misrepresent or hide an aspect of the product in order to change a customer’s decision or misinform.

Insurance agents are supposed to serve their customers’ interests first and foremost. Whenever a situation arises where a conflict of interest might be possible, customers should know about that so they can make a more informed decision. In addition, customers should know how much their financial planners are being compensated for certain services, and know all the particulars of a product or service they are thinking of buying. Insurance and financial planning customers should receive clear and honest information about the products they buy. With this information, they should be able to make the best possible decision for them.

Learn more about California ethics—check out our ethics continuing education program.

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