Words of Caution

Katt, Peter C.
July 2007
Journal of Financial Planning;Jul2007, Vol. 20 Issue 7, p36
Academic Journal
The article focuses on insurance illustration devices and on the hazards of carelessness when setting up policies for clients. It talks about the use of illustration devices in the late 1980s and 1990s with such techniques used as bonus interest after five or ten years and lapse-supported pricing. It mentions that the life insurance industry worked to curtail these abuses with model regulations for life insurance illustrations in 2001. It states that hedging formulas are notoriously inaccurate and cites the bust of the subprime lending practice as the most recent example. It then talks about carelessness in financial planning, citing a case where a financial planner neglected to exhibit reasonable care when selling a term policy to an acquaintance that resulted in a lawsuit.


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