For Insurance Sales, Get Your (Legal) Ducks in a Row
by Dori SaltzmanThis is the final article in a three-part series.
Travel sellers should offer travel insurance to clients in nearly every instance, experts agree. But there are legal technicalities they need to know first – that is, if agents want to avoid fines, criminal penalties and lawsuits.
Two areas stand out as critical: 1) the need to conform to state laws requiring those selling insurance to obtain a license, and 2) the importance of handling coverage for pre-existing medical conditions with extreme care, as this is the area where agents are most vulnerable to lawsuits.
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The vast majority of states lump travel insurance into the broader insurance industry, so selling travel insurance isn’t simple. But that doesn’t mean agents should neglect to offer insurance, says attorney Jeff Miller, principal of the Miller Travel Group and a travel industry consultant.
By offering insurance you not only protect the client, you mitigate the risk of a disgruntled client suing you for money lost when a trip was cancelled or interrupted, he explained.
Travel Market Report asked Miller what else agents need to know, from a legal perspective, about selling travel insurance.
Get licensed
Before you can even offer travel insurance to clients, you’ll probably need to get licensed, since the vast majority of states require licensing of some kind.
Rules vary state by state. For instance, in some states travel consultants who are agency employees are covered by the agency’s license to sell insurance. In other states, all individual agents, regardless of whether they’re on staff, need their own license to sell insurance.
To find out your state’s requirements, ask your travel insurance provider or call your state’s insurance regulation department. (Visit the National Association of Insurance Commissioners’ website, for links to the appropriate governing body in each state.)
Important for independents
For independent contractors, licenses are especially important, and all independent contractors should be licensed in the state where they live, Miller said.
If you have clients in states known to be especially strict about selling insurance – these include Florida, Washington, Utah, Massachusetts, New Jersey, Minnessota and Hawaii – you may also want to be licensed in the state where your clients reside.
Unlicensed sales: the consequences
The consequences of selling travel insurance without a license range from civil fines to criminal penalties, depending on the state.
“Generally the state forces the agent to register and pay some fines,” Miller said. Some states take a harsher stance.
It’s best to play by the rules, Miller said. “You want to get licensed. It’s not expensive; it’s easy, and it makes you legal.”
Warn about pre-existing conditions
Agents most open themselves to lawsuits around the issue of coverage for pre-existing medical conditions, Miller said.
So it’s vital that agents warn clients – in writing – that they must purchase an insurance policy within a certain number of days, from date of booking, if they have pre-existing conditions they want covered. (The number of days varies by insurer.)
When coverage is waived
If clients fail to buy insurance in time to cover pre-existing conditions, you need to notify them immediately – again in writing – that they’ve waived coverage of pre-existing conditions, even if they end up buying insurance.
“If their premium comes in 30 days [too late], notify them immediately, saying: ‘If you have any medical conditions, you have waived coverage of them, because you didn’t buy within the correct time frame.’”
“Clients need to know that. They don’t want to take insurance too late and find out a year later that they’re bad back is going to prevent them from collecting on the insurance if they can’t go on the trip.”
Get a signature
It’s important to have clients sign a form acknowledging that they were notified about time limits for obtaining coverage of pre-existing conditions. This prevents them suing later, based on the claim they were never told their bad back wouldn’t be covered.
“If I thought I had insurance and forgot about the pre-existing clause, and there’s nothing in writing, you’re going to get sued when I can’t collect,” Miller warned.
The pre-existing conditions disclosure – or lack thereof – causes the most headaches for his clients, Miller said.
Never ask medical questions
Agents should never ask clients about their specific medical problems, so they avoid running afoul of medical privacy laws, Miller advised, though he said he never heard of an agent being sued over this.
“If a client has a medical problem and they have a question, say, ‘Here’s the number or email for the insurance company. I don’t want to get involved as an agent between my client, the insurance company and any medical issues. I want no knowledge of it. There are all kinds of privacy laws protecting that.’”
If a client volunteers that they’ve got diabetes and need a refrigerator in their hotel room, that’s okay. But agents shouldn’t ask if a client has diabetes or any other pre-existing medical condition. Instead use the wording, “If you have any pre-existing medical conditions, you need to take the insurance within this number of days.” Tell, don’t ask.
Proof of refusal
When clients decide not to purchase travel insurance, you must be able to show that they declined it. They don’t necessarily have to sign a waiver though. You can mention it on the invoice, in the space where you deduct the price of insurance. Another option is to have clients sign something saying they’ve declined insurance.
“I have had clients sued who did not have signed consumer disclosure notices with confirmation that insurance was offered,” Miller warned.
Such cases typically settle without a trial – but not without cost to the agency.
Please see related articles: Selling Insurance: Horror Stories Will Do the Trick, Sept. 19, 2011, and Sell Trip Insurance for Peace of Mind, Yours & Theirs, Sept. 12, 2011.
