This post is part of a series where personal finance expert Dan Solin provides 10 insurance tips no one else will tell you. See all 10, plus one bonus tip!
Whose interests does your insurance agent represent?
You might think the answer is obvious: Yours, of course.
The issue is whether or not your agent has a "fiduciary" obligation to you. If so, she accepts the highest duty of loyalty and care. She cannot have any interests that conflict with yours.
In most states, however, insurance agents are not fiduciaries. They have no obligation to place your interests above their own or above those of the insurance companies they represent.
In those states that impose a fiduciary obligation on insurance producers, the industry has strongly resisted being held to this higher standard. The California Department of Insurance issued a legal opinion imposing a fiduciary duty on insurance brokers. The industry strongly criticized the opinion, calling it "erroneous."
The insurance industry spends mega advertising dollars to convince you to "trust" its agents. Most consumers believe that their agents are acting solely in their best interest -- and I am sure that many are.
However, it is important to understand that your agent is permitted to have conflicts of interest that may affect her ability to be totally objective.
Here's how to flush out this issue: Ask your agent to send you a letter simply stating that she agrees to act as a fiduciary in connection with her dealings with you.
If one arrives in the mail, you have a keeper.
Dan Solin is the author of The Smartest Investment Book You'll Ever Read (Perigee Books, 2006) and The Smartest 401(k) Book You'll Ever Read (Perigee Books, 2008).