The act of”twisting” when life insurance has been 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 each time an agent returns a life insurance policy that twisting has occurred. But whenever an agent is giving you or someone you know a hard market to buy a new system, then be sure to understand the consequences of replacing the old policy with a new one.
1. Life Insurance Long-Term Benefits
A permanent — whole or universal — life insurance policy is designed to supply long-term plans, resulting in providing a death benefit or an attractive cash surrender value following 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 the plan gets old, the cash value grows at a quicker pace. To replace an existing system, you would pay a higher rate for your insurance, and also, the new policy would likely not increase in money value as quickly.
2. Twisting Definition
Life insurance twisting occurs when an agent misrepresents the facts replace a lifetime policy the customer owns with a system from a different life insurance company. The agent uses misleading info or sales strategies to get the client to surrender the present policy and apply the cash value to fund a new life insurance contract. Twisting puts the customer in a worse place as much as his life insurance policy, and the reason behind twisting would be to generate commissions to the broker.
3. Twisting vs. Churning
Insurance laws distinguish between churning and twisting of life insurance policies. If a client is lured into replacing an existing system with a policy from the same company, the result is”churning” when the replacement was not into the client’s benefit. To get a replacement to be twisting, the new policy is from another life insurance company. If it’s the life policy is substituted through churning or twisting, the practice is prohibited if the consumer has been misled regarding the benefits of the replacement.
4. Legal Recourse
Not all life insurance policy replacements are churning. If the client will get actual better benefits from the policy, it was not an illegal replacement. A life insurance broker must present new kinds when a plan is replaced, letting the customer know the pros and cons of changing policies. If you believe a proposal was sold using twisting or churning tactics, contact the state insurance commissioner’s office and have them look into the matter.