Twisting is also called external replacement and is the practice of inducing a person to drop existing insurance to buy similar coverage with another producer or company. Replacing existing life insurance with a new life insurance policy based upon incomplete or incorrect representation is called twisting. This often is associated with making false statements about another insurer or producer, an illegal act that also runs contrary to ethical market conduct. Violators of this law are guilty of a first degree misdemeanor if proven to have exhibited fraudulent conduct. A violation is also punishable by an administrative fine of $5,000 for each nonwillful violation or $75,000 for each willful violation. Administrative fines for twisting, churning, or fraudulent signatures may not exceed an aggregate amount of $50,000 for all nonwillful violations arising out of the same action or an aggregate amount of $250,000 for all willful violations arising out of the same action.  Your browser isn’t supported anymore. Update it to get the best YouTube experience and our latest features. Learn more
The act of "twisting" when life insurance is being sold is illegal in most states. Twisting occurs when an insurance agent replaces an existing life policy with a new one using misleading tactics. It does not mean that every time an agent replaces a life insurance policy that twisting has occurred. However, if an agent is giving you or someone you know a hard sell to buy a new policy, make sure you understand the consequences of replacing the old policy with a new one.
A permanent -- whole or universal -- life insurance policy is designed to provide long-term coverage, resulting in either providing a death benefit or an attractive cash surrender value after a period of years. A life policy purchased at a younger age has rates based on your age at the time of purchase and as a policy gets older, the cash value grows at a faster rate. To replace an existing policy, you would pay a higher rate for the insurance, and the new policy would probably not increase in cash value as quickly.
Life insurance twisting occurs when an agent misrepresents the facts to replace a life policy the customer owns with a policy from another life insurance company. The agent uses misleading information or sales tactics to get the customer to surrender the current policy and use the cash value to fund a new life insurance contract. Twisting puts the customer in a worse position as far as his life insurance coverage, and the reason for twisting is to generate commissions for the agent.
Insurance laws differentiate between churning and twisting of life insurance policies. If a customer is enticed into replacing an existing policy with a policy from the same company, the result is "churning" if the replacement was not to the customer's benefit. For a replacement to be twisting, the new policy is from a different life insurance company. Whether a life policy is replaced through churning or twisting, the practice is illegal if the customer was misled concerning the benefits of the replacement.
Not all life insurance policy replacements are twisting or churning. If the customer gets actual better benefits from the new policy, it was not an illegal replacement. A life insurance agent must present additional forms when a policy is replaced, letting the customer know the pros and cons of changing policies. If you think a policy was sold using twisting or churning tactics, contact the state insurance commissioner's office and have them look into the matter.
Unfortunately, some agents engage in an unethical and usually illegal practice called insurance twisting. If you’re concerned about getting the best deal on your policy, you should learn about insurance twisting and how to protect yourself from it. Insurance twisting is when an agent convinces a policyholder to drop their existing policy and take out a new policy that isn’t in their best interests. Some agents earn commissions on their policy sales and could be motivated to increase their commissions by selling someone a policy that they don’t need. Simply convincing you to replace your homeowner’s insurance policy with another isn’t insurance twisting. After all, you probably went to an agent to get their help in shopping for a new policy. You might be refinancing, or adding an addition, and it’s simply a good time to review your existing policy. For the sale of a new policy to fall under the definition of insurance twisting, the agent must have engaged in deception to sell the policy. The “twist” the truth, and you end up buying a policy that isn’t a better replacement for your existing policy. Another aspect of the sale of a new policy that makes it twisting is if a higher commission or profit motivates the agent, not your best interests. No matter the motive, if an agent sells you a policy and is twisting the truth, you won’t buy the best policy for your needs. To qualify as twisting there must be an element of deception, where the agent misleads the policyholder. What would be an example of agent insurance twisting with your life insurance policy? Let’s say you bought a whole life policy that’s accrued cash value. Whole life insurance, or return of premium insurance, is more expensive than term life, and maybe the premiums have grown too high for your budget. You’ve contacted an agent for help selecting a cheaper policy that still protects your family. The agent convinces you to cancel your whole life policy and purchase term life. This will save you money in premiums, but what they don’t tell you is that you’ll either forfeit the cash value of your whole life policy or pay taxes on it. Those taxes could wipe out any premium savings. Reputable agents will explain the pros and cons of every policy change that you’re considering, including any tax implications. They won’t leave out details to make a sale. Homeowners insurance can be confusing – does your policy cover a detached garage or outbuilding? What about your new pool, do you need to increase your liability coverage? An example of twisting in homeowners insurance would be if you built a new garage and called your agent to ask if it’s covered. If they say it’s not, and tell you that you must add a rider to your existing policy, when it is covered, that would be twisting. Note that you may need to increase coverage if the new garage has a much higher replacement value, but that’s not the same as telling you it’s not included in your existing policy. Health insurance coverage can be expensive. Even if you want to reduce your premiums, if your health insurance doesn’t cover all your conditions or medications, switching coverage could be disastrous. If an agent sold you a policy and purposefully didn’t tell you that your new policy excluded one of your pre-existing conditions, that would be twisting. Purposefully concealing information to close the sale is both unethical and often illegal. Along with twisting, churning is another unethical practice that an agent might do to sell a policy. Churning is when they convince you to buy a new policy with the same company as your existing policy. Again, the new policy must not provide better benefits or have other pluses to it for the sale to count as churning. Selling it simply lets them collect an additional, larger commission than a renewal. The third unethical component of insurance sales is called “sliding.” It’s a less-obvious part of the insurance sale because it doesn’t consist of selling you an entirely new policy. Instead, it takes the form of riders and addendums. With sliding, an agent might sell a policyholder on additional products or coverage that they don’t really need. An example would be selling you a rider for high-value jewelry when your core coverage limits would pay for its replacement cost. An insurance commissioner would also consider sliding to be if you didn’t authorize the addendum or you thought that the rider wouldn’t increase your premiums. How can you protect yourself from insurance twisting? First, watch out for the hard sell. If your agent is pushing one policy, or a policy change, hard and making you uncomfortable, they might not have the best motives. Ask for more details. Second, get all the details. Good agents know that education is part of their job. They should be willing to explain the pros and cons of your policy selections. If you ask why you need higher coverage limits for your car, they should have a good answer ready. Third, ask for time to think about the policy change and review the disclosure statements. If the agent appears reluctant to give you the information in writing or allow you time to consider your options, walk away. What else should you look out for if you’re shopping for a new policy? Typically, a major life event will spark the need to review your existing policies. You bought a new house or car, had a baby, or took a new job. If an agent is recommending that you make a policy switch when nothing in your life has changed, it’s a red flag. Premiums serve to buy protection, and a higher premium often (not always) correlates with a higher coverage level. If a replacement policy would give you better coverage or the same coverage for lower premiums, it’s probably a good deal. But if the premiums are shockingly low and the agent is making tons of promises, it could be twisting. Does the comparison appear incomplete? When the agent compares your old policy and the policy they’re selling you side by side and something is missing, it’s a warning sign. Do you not see the deductible? What about the coverage maximums? Is something shown on one side of the equation, but not the other? Beware incomplete or mismatched disclosures. Lastly, what commission will the agent get if you buy the new policy? You have the right to ask. Good agents know that their commission reflects the time and effort they put into helping you find the best policy and that satisfied clients value their expertise and are willing to pay. While some people simply don’t feel comfortable discussing money, if they duck the question or hedge their response, take note. The insurance industry is heavily regulated, with laws and codes of professional conduct that dictate how agents can behave. If an agent is found to have broken a law or violated the code of conduct, they can lose their license. Generally speaking, your insurance agent must act to protect your financial well-being. They cannot sell you a policy that’s against your best interests. They also must give you comprehensive information to make the best choice. Agents can’t lie, mislead, or misrepresent a policy, and they definitely can’t recommend one policy over another based on their commission. Giving questionable advice or breaching their “duty of care” is an act of bad faith with serious consequences. The consequences alone offer you a measure of protection. The National Association of Insurance Commissioners created model laws that they encouraged states to adopt. Even if your state doesn’t require them, ethical agencies have put these policies in place. To guard against insurance twisting, an agency must have a robust internal review process when someone is switching policies. A supervisor might have to monitor and sign off on a policy switch. At InsuranceProAZ, all policy changes undergo review. Other protections include a 60-day cooling-off period. Within 60 days of purchasing a new policy, policyholders can change their minds and get their premiums back. The agency will also restore the old policy. This disincentivizes a hard sell where the policyholder might walk away, have time to think and realize they didn’t make the best choice. Ethical agencies also provide disclosure statements with detailed information about both your old and new policies. This helps you make your comparisons. You’ll be asked to sign a disclosure statement acknowledging that you received them. Protections exist to help consumers who think they’ve been twisted. Before taking action, talk to an agent you trust and ask them to review your old and new policy. Most agents are eager to earn your trust and want to maintain the industry’s reputation, and will review your policies for signs of fraud. You can report the insurance company to the state’s Department of Insurance. They will investigate and could require the company to correct the problem. Agents who are found guilty could pay fines and lose their licenses. The state’s insurance commissioner can press charges against them, but they don’t represent individuals. Any lawsuit the state insurance commissioner files would not compensate you, so if you want to seek financial redress, speak to a lawyer about direct representation. The reality is that the majority of agents want to help their clients. They’ve seen firsthand how important insurance can be in someone’s life – whether it’s protecting a business or repairing a roof after a windstorm. That, combined with laws and regulations, means that you probably don’t have much to worry about when it comes to insurance twisting. But you can further protect yourself against fraud by working with a highly-rated agency that’s received numerous awards and been in business for over 15 years. All of this speaks to their trustworthiness and satisfied customers. Contact an agent at InsurancProAz to get a quote today. We’re here to help! Call us today. |
What is twisting in life insurance
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