The Suitability Signature
Priya is a life agent at a firm that pays a higher commission on a particular permanent policy than on term. Her client, Mr. Haddad, 34, is a self-employed contractor with two young children, $18,000 in credit card debt, no emergency fund, and $250,000 of mortgage debt. He has $600 per month available for insurance. Priya's needs analysis shows a $750,000 coverage need; term would cost about $95/month for 20 years. The permanent policy would cost $540/month for a $400,000 death benefit. Priya's manager says: "Permanent is better for him long-term. Put him in the permanent policy and add a term rider later when he can afford it. The commission will help you hit your target." Priya also knows her firm's compliance review flags files where the recommended premium exceeds 25% of available cash flow.
1. Is the manager's recommendation suitable? Show the reasoning, including the numbers.
Read the worked answer
No. Three independent tests fail.
Coverage adequacy: Mr. Haddad's need is $750,000. The permanent policy provides $400,000 - a $350,000 shortfall - while consuming $540 of his $600 monthly capacity. Term provides the full $750,000 for $95, leaving $505/month for debt reduction and an emergency fund. A recommendation that leaves a young family $350,000 underinsured is not suitable regardless of its long-term merits.
Affordability and cash flow: $540/$600 is 90% of available capacity; the firm's own flag is 25%. He has $18,000 of high-interest debt and no emergency fund. Committing 90% of capacity to a permanent policy creates a high lapse risk - and a lapsed permanent policy is worse than a maintained term policy.
The "add term later" argument: it assumes future affordability that does not exist today and is not guaranteed. It also inverts the priority: protect the need first, optimize the structure later. If permanent coverage is genuinely appropriate, a smaller permanent base plus term is the standard compromise - not a $400,000 permanent policy that displaces the need.
Conflict: the higher commission and the manager's explicit reference to "hitting your target" are material conflicts. Priya must disclose the compensation differential and document why the recommendation serves the client.
2. Priya's manager pushes back: "Everyone does it this way. Just get the signature." What should Priya do, and what should she document?
Read the worked answer
She should decline to recommend the permanent policy as proposed and present Mr. Haddad with the term recommendation (or a blended base-plus-term option) with a written comparison showing coverage, premium, and the effect on his debt and emergency fund. She should disclose the commission differential in writing. She should document: the needs analysis; the coverage gap under the permanent option; the cash-flow figures; the manager's instruction and her response; and the client's decision, whatever it is. If Mr. Haddad, fully informed, chooses the permanent policy anyway, she may proceed only if it is not unsuitable - and at 90% of capacity with a $350,000 shortfall, she should escalate to compliance rather than sign.
"Everyone does it this way" is not a defence; it is a description of a systemic problem. Her obligation runs to the client and to the regulator, not to her manager's sales target. If the pressure continues, she should raise it through compliance or the firm's whistleblowing channel, because a manager who instructs agents to "just get the signature" is creating risk for every client on the team. The professional risk of refusing is a difficult conversation; the professional risk of complying is her licence.