Knowing About Insurance Twisting
Insurance twisting is an act of inducing or attempting a policy owner to drop an already existing insurance policy and to take another policy that is considerably the same kind by using misrepresentations of the advantages and limitations of the two policies. In simple, twisting occurs when an insurance agent replaces an existing policy with a new one using misleading strategies. Churning is a similar swindle in which the replacement policy is from the same insurance company.
In insurance twisting, the agent uses misleading sales strategies or information to get the customer give up the current policy and use the cash value to fund a new insurance contract. It does not mean that whenever an agent replaces a policy that twisting has occurred. However, if an agent is giving you or someone else you know a hard sell to buy a new insurance policy, make sure that you understand the results of replacing the old policy with a new one. The act of twisting when insurance is being sold is illegal/crime in most states.
The national association of insurance commissioners has created a model law, called as the “Unfair trade practices act”. This act helps to prohibit agents from misrepresenting any aspect of insurance policies, thus making insurance twisting illegal. Most states have authorized this model law. Many states also have laws that particularly define twisting a criminal offense. Even in the absence of such laws, twisting could be summoned under general fraud statutes.
The characteristic of insurance twisting
The defining characteristic of insurance twisting is the use of deceptiveness to sell a policy. There’s nothing wrong with the insurance agent reassuring prospective clients to replace their current insurance with a policy from the company the agent serves — provided that the new policy does a better job of meeting the client’s needs. In insurance twisting cases, it typically isn’t in the client’s best interest to take out a new policy. That is why the agent has to mislead the client by twisting the truth, which is how this practice got its name.
Not all life insurance policy replacements are twisting. If the customer gets better benefits from the new policy, it is not an illegal replacement. The older the twisting victim, the more it is going to value him to buy a new policy. The insurance agent must present additional documents when a policy is replaced, thus letting the customer know all the pros and cons of changing policies. A disclosure statement should be provided that lists all the new premiums that go with the new policy, and mentions any relevant information, such as whether there would be increase in the cash value.
The pros and cons of insurance twisting
Insurance twisting has both pros and cons — but the pros are all on the insurance agent’s end. By selling a new policy, the agent gets a fresh share of profit. The more expensive the policy he talks you into buying, the better his take.
The policy may reduce inclusion, or set restrictions that aren’t in the original. If it’s a life insurance policy, the cash value that has built up in the old policy disappears once the replacement was done.
Insurance twisting puts the customer in a worse position as long as his life insurance coverage, and the reason for twisting is to generate proxy for the agent.