Let the seller beware: in the wake of mutual fund scandals, life insurers and agents need to be prepared for regulators and investigators knocking at their doors.

How many industries are there that always have kept their word? As far as I know, life insurance is the only one that qualifies. Take it a step further. Name one industry in which competitors agree to make good on promises made to customers by an insolvent firm? Again, the answer is the life insurance industry.

While some may view such comments as impertinent and self-serving, they also are accurate. Whatever our faults--and we know them all too well--life insurance is a business that delivers on its promises.

In spite of this track record, we should prepare ourselves for what could very well be waiting for us around the next turn in the road.

In a way, mutual funds have enjoyed a similarly enviable place in the minds of small investors. They have given millions of average Americans an opportunity to benefit not only from the fruits of their labor as employees, but as investors as well.

But once again greed seems to be casting a dark shadow across the mutual fund industry. It's particularly onerous since those who appear to have been hurt are the average Americans who have, correctly or incorrectly, become somewhat cynical about corporate America.

Is there a message here for the life insurance industry? Will we find ourselves charged with wrongful acts along with so many mutual fund companies, broker dealers and banks? Can we really expect to avoid a scandal? Have we forgotten that the variable life products that we designed to help us compete with the mutual fund onslaught contain mutual funds? Even though the package may be wrapped in life insurance, the mutual funds are inside.

Whether we're prepared or not, the investigators may come knocking on our door. Even though we do everything correctly and make it clear to customers exactly what they are purchasing, many are often unhappy if the financial reality does not measure up to their expectations. Unfortunately, there are those who specialize in coming to the aid of those who want to believe they have been wronged.

"Let the buyer beware" is dead. Justified or not, there is almost always some form of recourse. Taking responsibility for one's own decisions has slowly been replaced by a different dictum: "Let the seller beware." If we aren't painstakingly careful, we can be hurt, often badly. If this is the situation in which we find ourselves today, here are thoughts on how we can proceed.

We should be clear about what business we are in. Life insurance is a foundation asset. Our customers buy it so that there will be funds when they die. We can dress it up all we want and we can give it what some consider more appealing names, but in the final analysis, we sell a guaranteed death benefit.

Why have we allowed ourselves to be seduced by a complicated product such as variable life? No matter what customers read and are told about these policies, they cry "foul" when their policies don't perform as they expected. We hear what we want to hear. Knowing that basic truth, are we putting ourselves in harm's way by selling variable life? What we gain in sales, we lose quickly in bad publicity, not to speak of the possibility of finding ourselves being named in a lawsuit. If this seems like a remote possibility, a recent ad for a legal organization stated that one in three small businesses would be sued in the next 12 months.

Agents should document their actions. Life insurance agents like to sell. That's their strength and they enjoy meeting clients and solving problems. As we all know, this does not always extend to adequate recordkeeping!

Creating a proper paper trail today is essential. Unfortunately, many agents lack adequate support systems to provide the documentation.

The reason for these records is simple: someone is going to sue you. These aren't necessarily greedy or dishonest people. They often hear, read or see ads telling us that we may be due payment if we believe we have been wronged.

Without proper records, any life insurance agent is taking an unnecessary and potentially costly risk. Are you home free if you retire or leave the life insurance business? Hardly. Someone may very well come looking to serve you papers as a defendant in a lawsuit.

This is certainly a somber scenario; but it's also realistic. The more complicated we make our products, the more we open ourselves and our industry to charges of misrepresentation--or worse. And it's equally irresponsible to put at risk the careers of those who work to provide their clients with proper coverage. This is a case for the seller to beware.

Ronald D. Verzone, a Best's Review columnist, is president of United Underwriters Inc. of Exter, N.H. He can be reached at. [e-mail]