There are many questionable ways insurance agents get clients to buy products from replacement insurance, false advertising insurance, and loading in insurance.
The practice of attempting to convince a policyholder into replacing their current life insurance policy with a comparable one from a different insurer is known as insurance twisting.
Why is it called twisting? It is twisting because it involves the insurance agent using false or confusing information to get their client to make that switch. While this can happen with all insurance policies, it is most common with life and health insurance policies.
As we just mentioned, insurance twisting is a type of replacement insurance that agents use to convince policyholders to forgo any existing policy and take out another. Most insurance agents usually earn commissions from policy sales and use this method to sell policies to people that do not necessarily need them.
The insurance agent would have to use deceptive ways to sell the policy or get policy owners to replace their existing policy. Unfortunately, these policies do not serve the best interests of policyholders and only increase agents' profit margins and involve some level of coercion insurance (an illegal trade practice that involves mental/physical strength).
To begin with, twisting and rebating in insurance are two different things. We’ve already explained what twisting in insurance means. Therefore, you shouldn’t be confusing these two terms. So, let’s have a look at what rebating in insurance represents.
Rebating is when an insurance company refunds part of the premium or a portion of the agent's/broker's commission to the insured or other incentives to acquire a business with a certain provider.
In a nutshell, this means that twisting and rebating in insurance is the practice of paying a commission to an agent for their services. The significant difference is that twisting occurs when paying a more considerable sum of money than originally agreed, whereas rebating is the act of paying less money.
Note: You should know that twisting happens prior to purchasing something while rebating occurs after something is being purchased.
In brief, the practice of twisting in insurance is illegal (in most US states). There are cases when people are convinced that they are doing a good thing by offering an acceptable price so they don’t look upon it as twisting. At the same time, other people believe that if they pull off a twist in insurance prior to finalizing an agreement, they shouldn’t be found guilty about doing so. However, in each case, you’re still twisting, and either way, it’s not the right thing to do.
Simply because twisting involves using deceptive means to get people to change their existing life insurance policies, most states consider twisting a criminal offense, and most agents found guilty could be prosecuted under fraud statutes. And the state of America, i.e., The National Association of Insurance Commissioners has a legal body that protects people from being deceived when it comes to insurance. The Unfair Trade Practices Act doesn’t allow any misrepresentation of such policies.
There are cases when insurance policy replacements can be termed as twisting. For instance, if a customer receives better benefits from a newly proposed policy upgrade, that’s not an illegal replacement/activity. Furthermore, twisting an insurance policy means that it isn’t your best deal; moreover, it only works out for the agent that’s proposing it to you.
Nevertheless, if you think you have been sold a policy under twisting methods, you must contact your state's insurance commissioner's office to lodge a complaint and open an investigation.
Insurance products/policies like life insurance, health insurance and other annuity policies are dynamic. They are constantly changing the benefits and adding more options to make them versatile to policyholders. There is a thin line that separates churning from twisting in insurance.
Therefore, you shouldn’t be surprised to find your insurance company persuading you to exchange one product for the other if they believe those specific products best suit your needs. Of course, the insurance agent might have personal reasons for getting their clients to swap policies, and these reasons are primarily commission-based. Anyway, understanding the differences between twisting and churning in insurance is essential.
Churning usually happens when an insurance agent intentionally uses false statements or documents to convince policyholders to give up existing insurance policies in favor of a new one from the same insurer. Additionally, most agents persuade policy owners to take out their accumulated earnings under their current policy to help fund the new one. This is not beneficial to insurance companies, but it is an excellent deal to agents. Hence, it is a smart tactic that agents use to increase their commissions.
Twisting in insurance is essentially the same. However, a twisting insurance example involves intentionally using false/misleading claims or statements to persuade a client to give up a policy from a different insurance company. By doing this, both the agent and the insurance company benefit more by poaching clients from competitors.
Most insurance agents have put measures to prevent insurance churning, such as requiring agents to present official documentation of any policy changes to clients. You can also take further preventive actions like independent research on the dedicated agent. Or, you can ask around about the insurance agency in general and see what people have to say about it.
There are a few key differences between twisting and misrepresentation:
Misrepresentation occurs when individuals provide false statements or information on their coverage applications. That said, it can take many forms, including exaggerating a claim or telling outright lies about the event that led to their filing.
Moreover, misrepresentation would have played an important role in the insurance company's policy decision if truthfully provided it, which leads to the fact that when discussing misrepresentation instances, it is usually the policyholder who provides misleading information.
Ultimately, when a case of misrepresentation happens on behalf of the person insured, the insurance company has the exclusive right to terminate an insurance policy.
Note: You might want to know something about sliding insurance since it’s another highly unethical method being often practiced. However, with this type of insurance, it’s the agent’s ‘’fault’’ when it fails to disclose the insurance transaction details fully. And this ends up in excessive charges on the customer’s behalf.
Identifying the signs of an insurance agent that uses deceptive means is vital for all customers.
Here are some signs and characteristics of insurance twisting:
One of the most asked questions about insurance twisting is ‘what is twisting in life insurance?’
Imagine taking out a life insurance policy that has accumulated cash value over the past couple of years. And it just so happens that the premiums have gotten too much for your current financial status. The reasonable thing to do here is to reach out to an agent from your insurer who promises to help you find a cheaper policy that still has some great benefits.
However, the agent then tells you to give up on your new policy for a new one from a different company. They promise that this new policy will help you save money in premiums, but here’s the thing - they don't tell you the catch. The catch is that you might either have to give up your accrued cash value from your old policy or pay taxes. Unfortunately, you may lose any premium savings because of the taxes you’ll need to pay.
Ultimately, a good and credible insurance agent would explain all circumstances and lay out the advantages and disadvantages to help you make a more informed decision when answering the question ‘what is twisting in insurance terms?’.
The insurance industry has a lot of regulations and codes that spell out how agents should behave. While some states have made insurance twisting illegal, many others haven't. However, if insurance is found to have violated any of the existing codes in a specific state, they can lose their license.
Hopefully, this article has shed more light on the topic: what is twisting in insurance? Fortunately, many insurance agents out there want the best for their clients. Plus, with current regulations and codes, you shouldn't worry much about insurance twisting. Nonetheless, it would help to protect yourself by working with credible agencies. For more information, check out Policy Advice.net to help you find the best insurance company.
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