Twisting And Churning Insurance
Twisting and churning are two unethical practices in the insurance industry that can harm policyholders. Both practices can result in unnecessary costs for policyholders, as well as disruptions in coverage and loss of policy benefits. By understanding the risks of twisting and churning, policyholders can make informed decisions about their insurance coverage and protect themselves from unethical practices.
Insurance industry professionals are required, in many cases by law, to always act in the best interests of their customers. Due to the nature of the financial obligations placed upon the insured by entering into an insurance contract. An insurance agent’s advice can have a significant impact on an insured’s financial well-being. Producers have a fiduciary responsibility to safeguard their customers’ best interests by acting ethically, especially with life insurance policies.
What Is Twisting Insurance?
Twisting in insurance refers to an unethical practice where an insurance agent or broker engages in deceptive tactics to convince a policyholder to surrender their existing life insurance policy and replace it with a new one from a different insurance carrier. The new policy typically offers either similar or inferior benefits compared to the original policy. The primary motivation behind twisting is the financial gain for the agent or broker, as they earn commissions on the sale of the new policy.
This deceptive maneuver involves the use of misrepresentations, false statements, or other unethical means to persuade the policyholder that the replacement policy is more advantageous or better suited to their needs. In reality, the agent is driven by the desire to secure a new commission by convincing the policyholder to abandon their current policy.
Unlike legitimate policy replacements that genuinely benefit the policyholder, twisting exploits the trust between the insured and the insurance professional. It can lead to unnecessary costs for the policyholder, potential disruptions in coverage, and a loss of policy benefits. Twisting is considered illegal in the insurance industry, as it undermines the principles of fair dealing, transparency, and the fiduciary duty that agents owe to their clients.
Policyholders should be vigilant and cautious when approached by agents advocating for policy replacements, especially if the proposed changes seem unwarranted or if the benefits of the existing policy are being downplayed. Understanding the distinction between legitimate policy adjustments and twisting is crucial for making informed decisions about insurance coverage and safeguarding against unscrupulous practices within the industry. If policyholders suspect they have been victims of twisting, it is advisable to seek guidance from regulatory authorities and reputable insurance advisors to address the situation and protect their interests.
What is Churning Insurance?
Churning in insurance refers to an unethical practice wherein an insurance agent or broker persuades a policyholder to surrender their existing life insurance policy with the same insurance carrier and replace it with a new one. Similar to twisting, churning often involves the sale of a new policy that offers either comparable or inferior benefits to the original policy. The primary motivation behind churning is the financial incentive for the agent or broker, who earns commissions on the sale of the replacement policy.
This deceptive practice is characterized by the use of misrepresentations, false statements, or other unethical tactics to convince the policyholder that replacing their current policy is in their best interest. The agent may downplay the value of the existing policy, exaggerate the advantages of the new one, or use other manipulative techniques to induce the policyholder to surrender their coverage.
Churning poses significant risks to policyholders, including unnecessary expenses, potential disruptions in coverage, and the loss of policy benefits. Moreover, it erodes the trust and fiduciary relationship that policyholders expect from insurance professionals. Recognizing the distinction between legitimate policy adjustments and churning is essential for making well-informed decisions about insurance coverage and protecting oneself from unscrupulous practices in the insurance industry.
It’s important for policyholders to exercise caution and thoroughly evaluate any recommendations for policy replacements, especially if such changes appear unwarranted or if the benefits of the current policy are being misrepresented. Since churning is considered an illegal practice within the insurance sector, policyholders who suspect they have been victims of churning should promptly seek guidance from regulatory authorities and reputable insurance advisors to address the situation and uphold their rights.
Life Insurance Policies Bad Apples?
This isn’t to say, however, that the insurance industry doesn’t have its share of bad apples. Although producers are duty-bound to make appropriate insurance product recommendations to their customers, their own desire to earn commissions from insurance sales presents an inherent conflict of interest. While a producer’s fiduciary responsibilities always require valuing the customer’s interests over his own, some choose to violate the insurance professional’s code of ethics by acting deceitfully.
A practical example of ethics gone wrong can be found in the world of life insurance. Many who purchase life insurance utilize their policies as cash accumulation vehicles, with the intent of relying on policy proceeds later in life when they are no longer able to earn an income by working. When purchasing life insurance, it’s in your best interest to purchase a single policy and allow it to accumulate over time.
However, this plan does not always serve the interests of the life insurance producer. Every new policy sold to a customer represents an additional chance at a commission. Agents rely upon commissions for their own income. This conflict of interest causes some producers to trick their customers into surrendering existing life insurance policies. They do this to generate new commissions for themselves as agents. The insurance industry uses the terms churning and twisting to describe such deceitful practices.
Understand The Difference Between Churning And Twisting
It is important to understand the differences between churning and twisting, both of which are considered illegal practices. While both essentially constitute the same activity, they are performed under separate circumstances, and for different reasons.
Churning occurs when an insurance producer deliberately uses misrepresentations or false statements in order to convince a customer to surrender a life insurance policy in favor of a new one from the same insurer. This is usually accomplished by convincing the insured to withdraw the cash accumulated from the existing policy in order to fund the purchase of the new policy. As one might guess, this is of little benefit to the insurer; one policy is lost but another is gained, creating a net-neutral effect for the insurer. The producer, however, gains the advantage of a new commission.
Twisting is essentially the same practice but conducted with different parties involved. Twisting occurs when an insurance producer deliberately uses misrepresentations or false statements in order to convince a customer to surrender a life insurance policy in favor of a new one from a different insurer. In this case, both the producer and the insurer stand to benefit, as business is being stolen from an industry competitor via deceitful practices.
Both Rely On Deliberate Deceit
Note that both churning and twisting rely on deliberate deceit on the part of the insurance producer in question. Convincing an insured to surrender a life insurance policy in favor of a new one isn’t necessarily constitute illegal. For example, when such replacement actually is in the customer’s best interests. Accidentally convincing an insured to replace his life insurance policy cannot hold anyone liable for churning or twisting. As this mistake was not made deliberately.
Even though such practices are usually prohibited by law, one should still be wary of churning and twisting. Treat any advice to surrender existing life insurance as a “red flag” of sorts. Unscrupulous agents can prey upon unknowledgeable customers, convincing them to drain their existing policies. They want you to purchase new ones, forcing them to start all over. Insurance consumers have the right to know how producers are compensated and commissions are earned and must make every effort to determine that a recommended policy replacement is indeed in their best interests. Additionally, consumers should understand the basics of life insurance, and choosing the best plan for their own and their family’s needs.
St. Louis Insurance Advisors: How We Can Help
At Insurance Advisors of St. Louis, our commitment to the St. Louis community spans decades, providing expert insurance solutions since 1966. As an established independent agency, we focus on delivering personalized service and comprehensive coverage to address your specific needs. Here’s how we can assist you in navigating the complexities of insurance, particularly concerning twisting and churning:
Expert Advice on Twisting and Churning:
Our experienced independent insurance agents understand the risks associated with twisting and churning practices. We provide expert advice to help you recognize these unethical practices, ensuring that you are well-informed and equipped to protect yourself from potential financial harm and coverage disruptions.
Personalized Coverage Assessment:
If you suspect you may have been a victim of twisting or churning, our team can conduct a personalized coverage assessment. We carefully review your existing policies, identify any discrepancies or deceptive practices, and guide you on the appropriate steps to address the situation.
Claims Assistance and Advocacy:
In the unfortunate event that you experience issues related to twisting or churning, our team is here to provide claims assistance and advocacy. We work on your behalf to navigate the claims process, ensuring your rights are upheld and that you receive fair treatment from insurance carriers.
We believe in empowering our clients with knowledge. Our team offers educational resources specifically focused on twisting and churning, helping you understand the signs of these unethical practices and how to safeguard yourself against them.
Transparent and Unbiased Service:
As independent insurance agents, our commitment is to your best interests. We operate transparently and without bias, providing you with honest guidance on your insurance needs. Our goal is to build a relationship based on trust, ensuring that your coverage aligns with your requirements without the risk of unnecessary policy changes.
While our primary focus is on addressing twisting and churning concerns, we remain engaged with the St. Louis community. Our commitment to local events and initiatives reflects our dedication to staying connected and informed about the evolving landscape of insurance practices.
Contact Insurance Advisors of St. Louis today for guidance on twisting and churning concerns. We’re here to provide the support and expertise you need to navigate the intricacies of insurance, protect your interests, and make informed decisions about your coverage.
Twisting And Churning Insurance FAQ
Q: Is twisting in insurance illegal?
Yes, twisting in insurance is considered illegal. It involves the unethical practice of convincing a policyholder to surrender their existing policy for a new one, typically from a different insurer, with either comparable or inferior benefits.
Q: What is the difference between twisting and misrepresentation?
Twisting involves persuading a policyholder to replace their current policy with a new one, while misrepresentation involves providing false information about the terms or benefits of an insurance policy. While both are unethical, twisting specifically focuses on the act of inducing policy replacement.
Q: What’s an example of twisting in insurance?
An example of twisting is when an insurance agent convinces a policyholder to surrender their current life insurance policy and purchase a new one from a different insurer, misrepresenting the benefits or suggesting that the new policy is more advantageous.
Q: What is the penalty for insurance churning?
The penalties for insurance churning can vary depending on the jurisdiction and the severity of the offense. In many cases, insurance regulators may impose fines, license revocation, or other disciplinary actions against agents or brokers engaged in churning practices.
Q: What does knocking mean in insurance?
“Knocking” in insurance refers to the unethical practice of an agent or broker persuading a policyholder to replace an existing policy, often with a new one from a different insurer. This practice is similar to churning and twisting, as it may lead to unnecessary policy changes for the policyholder.
Q: Is churning illegal in insurance?
Yes, churning in insurance is considered illegal. It involves the deceptive practice of an insurance agent persuading a policyholder to surrender their existing policy with the same insurer for a new one, often for the primary purpose of generating additional commissions.
Q: What is an example of churning?
An example of churning is when an insurance agent convinces a policyholder to surrender their current life insurance policy with the same insurer and replace it with a new policy. The new policy may offer similar or even reduced benefits, but the agent benefits from earning a commission on the sale of the new policy.