239 / How does the Department of Labor fiduciary standard impact advisors who sell life insurance or disability insurance?

Editor’s Note: The 2016 fiduciary standard was vacated entirely by the Fifth Circuit.  As of the date of this publication, the DOL has released a new proposed standard to replace the 2016 rule. The proposal follows the basic concepts of the original rule, but, if finalized, is expected to greatly expand the scope of fiduciary liability. The most recent proposal is much broader than prior rules and would presumably apply to a wide range of transactions, including those involving life insurance.  However, it remains uncertain exactly how this new standard will impact advisors who sell life and disability insurance. See Q 3982 for details.

While advisors who provide advice relating to health savings accounts were to be covered by the Department of Labor’s heightened fiduciary standard, certain related products, such as disability and term life insurance policies, were expressly excluded from the definition of investment property and were thus not subject to the fiduciary standard. This would have been the case to the extent that these products do not contain an investment component. As a result, presumably, permanent life insurance policies that did contain an investment component would have been subject to the DOL fiduciary rule.¹

1.     29 CFR § 2510.3-21(g)(4).