Before recommending a product and before the client signs an application, the agent must disclose, in plain language:
- The type of product being recommended (term life, permanent life, participating, universal life, disability, critical illness, etc.)
- Premium obligations: the current premium, any premium flexibility, and whether premiums can change
- Benefit payable: what triggers the benefit, what the amount is, and what conditions apply
- Exclusions and limitations: what the policy does not cover, waiting periods, pre-existing condition provisions, suicide clauses, and contestability periods
- Surrender values and cash values where applicable: what the client receives if they cancel or lapse the policy
- Non-forfeiture options where available
The standard for adequate disclosure is not that the agent handed over the policy booklet. It is that the client understood the material features. An agent who completes a sale where the client did not understand that a term policy expires, that a disability policy has an elimination period, or that a critical illness policy covers only specific conditions, has not met the disclosure obligation.
Common mistake: assuming delivery of the policy document discharges all disclosure obligations. Policy delivery is one component of the process; the obligation to explain begins before the application is signed.
Recall: Name four items an agent must disclose about a product before the client signs an application.