Twisting in insurance is a deceptive and illegal practice that involves convincing a policyholder to replace their existing life insurance policy with a similar one from another insurer based on false or misleading information.
The agent who does this usually gets paid a commission for the sale of the new policy, but the policyholder may suffer financial losses and other negative consequences.
In this article, we will explain what twisting is, how it works, why it is harmful, and how to protect yourself from it.
Understanding Twisting in Insurance
Definition and Explanation
Twisting is a type of insurance fraud that occurs when an agent persuades a policyholder to cancel their current life insurance policy and buy a new one from a different insurer, without disclosing the disadvantages or risks of doing so. The agent may use various tactics to induce the policyholder to switch, such as:
- Exaggerating the benefits or features of the new policy
- Downplaying the value or performance of the existing policy
- Falsifying or omitting information about the costs or penalties of switching
- Creating a sense of urgency or pressure to act quickly
- Offering incentives or rebates that are not authorized by the insurer
The agent’s main motive for twisting is to earn a commission from the sale of the new policy, which is usually higher than the renewal commission from the existing policy. The agent may also benefit from meeting sales quotas or targets set by the insurer.
Illegal Practices Involved in Twisting
Twisting is considered an illegal and unethical practice in most states in the US, and can be prosecuted under fraud statutes. Twisting violates several principles and regulations of the insurance industry, such as:
- The duty of good faith and fair dealing between the agent and the policyholder
- The requirement of full disclosure and informed consent from the policyholder
- The prohibition of misrepresentation or omission of material facts
- The prohibition of coercion or undue influence on the policyholder
- The prohibition of rebating or offering unauthorized discounts or inducements
Agents who engage in twisting may face civil fines, criminal penalties, loss of license, or lawsuits from policyholders or insurers.
Negative Impact of Twisting
Twisting can have serious and lasting negative impacts on both policyholders and insurers, such as:
1. Customer Confusion and Dissatisfaction
Policyholders who are victims of twisting may not fully understand the terms and conditions of the new policy or may have unrealistic expectations about its benefits or performance. They may also discover that they have lost some valuable features or guarantees from their existing policy, or that they have incurred additional costs or penalties for switching. As a result, they may feel confused, misled, cheated, or dissatisfied with their new policy.
2. Increased Risk for Insurers
Insurers who issue new policies to policyholders who have been twisted may face increased risk exposure and liability. For example, they may have to pay higher claims if the new policy has more generous benefits or lower premiums than the existing policy. They may also have to deal with more complaints, disputes, cancellations, or lawsuits from unhappy policyholders. Moreover, they may suffer reputational damage or loss of trust from potential customers who are aware of the twisting practices.
3. Potential Legal and Regulatory Issues
Both agents and insurers who are involved in twisting may face legal and regulatory issues from various authorities, such as:
- State insurance departments or commissioners who enforce insurance laws and regulations
- Federal agencies such as the Federal Trade Commission (FTC) or the Securities and Exchange Commission (SEC) oversee consumer protection and financial markets
- Professional associations or organizations such as the National Association of Insurance Commissioners (NAIC) or the American Council of Life Insurers (ACLI) set standards and codes of conduct for the industry
- Courts or arbitrators who adjudicate disputes or claims arising from twisting
These authorities may impose sanctions, penalties, fines, injunctions, orders, or judgments against agents or insurers who are found guilty of twisting.
How to Protect Yourself from Twisting?
As a policyholder, you can take some steps to protect yourself from twisting and make informed decisions about your life insurance needs and options. Here are some tips:
1. Research and Educate Yourself About Insurance Policies
Before you buy a new life insurance policy or replace an existing one, you should do some research and educate yourself about the different types of policies available, their features, benefits, costs, risks, and limitations. You should also compare different policies from different insurers to find the best one that suits your needs and budget. You can use online tools, calculators, guides, or ratings to help you with your research.
2. Be Cautious of Unsolicited Offers or Pressure Tactics
If you receive an unsolicited offer or call from an agent or broker who wants to sell you a new life insurance policy or replace your existing one, you should be cautious and skeptical. You should not agree to anything without verifying the identity and credentials of the agent or broker, and without reviewing the details and documents of the new policy. You should also not sign anything or make any payments until you are sure that the new policy is in your best interest and that you understand its terms and conditions. You should also avoid any pressure tactics or deadlines that the agent or broker may use to get you to switch.
3. Verify the Credentials of Insurance Agents or Brokers
Before you deal with any insurance agent or broker, you should verify their credentials and reputation. You should check if they are licensed and authorized to sell life insurance policies in your state, and if they have any complaints, disciplinary actions, or lawsuits against them. You can use online databases, directories, or websites from state insurance departments, professional associations, or consumer protection agencies to verify the credentials of insurance agents or brokers.
Conclusion
Twisting in insurance is a fraudulent and illegal practice that involves convincing a policyholder to replace their existing life insurance policy with a similar one from another insurer based on false or misleading information. Twisting can harm both policyholders and insurers in various ways, such as causing financial losses, customer dissatisfaction, increased risk exposure, and legal and regulatory issues. Policyholders can protect themselves from twisting by researching and educating themselves about insurance policies, being cautious of unsolicited offers or pressure tactics, and verifying the credentials of insurance agents or brokers.
