Insurance is a financial tool designed to protect you from unexpected losses. From your health to your car, insurance can offer peace of mind by providing a safety net when things go wrong.
Unfortunately, some insurance agents engage in unethical and often illegal practices, one of which is called “twisting.” In the insurance world, the twisting definition involves an agent misleading or coercing a policyholder into switching from one insurance policy to another, typically to benefit the agent through increased commissions.
This practice can be extremely harmful to policyholders, resulting in lost coverage, higher premiums, or other financial disadvantages. It’s important to be aware of twisting so you can protect yourself.
This article will provide a comprehensive overview of insurance twisting, explaining its consequences and offering guidance on how to avoid becoming a victim of this deceptive practice.
What is insurance twisting?
Insurance “twisting” is when an insurance agent convinces a policyholder to drop their current policy and buy a new one that benefits the agent more than the customer.
Often, the agent will misrepresent or omit key facts, make incomplete comparisons, or use other deceptive strategies to induce the client to switch policies.
It’s important to distinguish twisting from legitimate policy reviews, in which an agent reviews a client’s existing insurance to make sure they have adequate coverage at a competitive rate. Twisting is all about prioritizing the agent’s commission, not the client’s needs.
Other unethical insurance practices
Insurance agents may also engage in “churning” or “sliding.” Churning is when an agent sells a client a new policy with the same company just to collect the commission. Sliding is when an agent adds riders or coverage to a policy that the client didn’t ask for or doesn’t need.
How twisting hurts policyholders
Insurance twisting can have serious financial and coverage consequences for the person being twisted.
Financial losses
The financial harm from twisting can be considerable. You might have to pay surrender charges on your old policy. The new policy could have higher premiums, and you could lose accumulated benefits, such as the cash value in a life insurance policy.
The Coalition Against Insurance Fraud estimates that insurance fraud, including twisting, costs Americans more than $40 billion each year.
Coverage deficiencies
Twisting can also leave you with less insurance coverage than you had before. Agents who twist often downplay the benefits of your existing policy or give you incomplete comparisons. The new policy might not protect you as well as the old one did, or it might have exclusions your original policy didn’t have.
Examples of twisting
Here are a couple of examples of twisting in action:
- Life insurance: An agent convinces you to switch from a whole life policy to a term life policy without fully explaining the long-term implications of the switch.
- Homeowners insurance: An agent misrepresents coverage options for a new addition you’ve made to your home.
Legal and Regulatory Framework: Anti-Twisting Laws and Penalties
In almost every state, “twisting” is against the law. The National Association of Insurance Commissioners (NAIC) has published the Life Insurance and Annuities Replacement Model Regulation, which most states use as the basis for their own anti-twisting laws.
These laws are designed to protect you from insurance agents who might be tempted to get you to switch policies just to pad their own commissions.
If an agent engages in twisting, they could face serious consequences:
- Fines. Agents can be forced to pay a hefty fine.
- Jail time. In some cases, agents could face time in jail.
- License revocation. Agents could have their licenses taken away, which means they can no longer sell insurance.
State insurance departments take these violations seriously. They investigate complaints and take action against agents who are found to be acting unethically. If you believe you’ve been a victim of twisting, you should contact your state’s insurance department immediately.
Spotting and Steering Clear of Insurance Twisting: Red Flags and Smart Moves
It’s not always easy to spot an insurance agent who’s trying to get you to ditch your current policy and buy a new one that benefits them more than you. Here are some things to watch out for, and steps you can take to protect yourself.
Red flags
- Pressure to cancel your existing policy
- Offers that sound too good to be true
- Disclosure statements that are incomplete or don’t seem to match what you’ve been told
- Requests to make payments directly to the agent, instead of to the insurance company
Smart moves to protect yourself
Being proactive can help you avoid being taken advantage of.
- Ask lots of questions about policy terms, premiums, deductibles, and what’s covered.
- Do your homework. Research different insurance companies and their policies.
- Don’t be rushed. Ask for time to consider the offer and to review all the disclosures.
- Compare policies side-by-side to see how they stack up.
- Be wary of hard-sell tactics.
- Talk to a trusted, independent agent or financial advisor to review your policies and help you make an informed decision.
The role of the insurance agent and the importance of ethical conduct
Insurance agents have a responsibility to act ethically and in the best interests of their clients. The most honest and independent agents explain policies clearly and avoid making misleading statements.
Insurance agents also have what’s called a “duty of care,” meaning they have to be careful and thorough when selling you a policy. A reputable agency guards against “twisting” by:
- Implementing internal review processes
- Providing cooling-off periods
- Making sure you have comprehensive disclosures
Commissions are a big part of how insurance agents get paid, so it’s easy to see how conflicts of interest can arise. Financial advisors may be tempted to put their own commissions ahead of your best interests. Therefore, it’s important to do your research and choose an advisor or agent who puts your needs first.
What to do if you think you’ve been twisted
If you think an insurance agent has talked you into replacing a policy to their benefit and not yours, here’s what you should do:
- Collect your documents. Gather every piece of paperwork related to the old and new policies, and keep records of all communication with the agent.
- File a complaint. Contact your state’s Department of Insurance and file a formal complaint against the agent and the company.
- Get legal advice. Talk to a lawyer who specializes in insurance fraud. They can help you understand your rights and explore your options.
It’s really important to keep detailed records of everything and to get professional help as soon as possible.
Frequently Asked Questions
What are churning and twisting?
Churning and twisting are both unethical and often illegal practices in the insurance industry. Twisting involves convincing a client to replace their existing policy with a new one, often with misleading information. Churning is similar, but focuses on generating commissions through frequent policy replacements within the same insurance company.
What is the difference between twisting and misrepresentation?
Twisting involves persuading someone to switch insurance policies using misleading or incomplete information. Misrepresentation, on the other hand, is a broader term that refers to any false or misleading statement made about an insurance policy, whether it’s used to induce a policy change or not. Twisting often involves misrepresentation.
What is an example of twisting in insurance?
An example of twisting would be an agent who convinces a client to drop their current life insurance policy, claiming the new policy offers significantly better benefits and lower premiums, while failing to disclose hidden fees or reduced coverage in the new policy.
What is considered twisting?
Twisting is generally considered to be any act where an insurance agent knowingly makes false or incomplete comparisons of different insurance policies to induce a policyholder to lapse, surrender, or terminate their existing policy in order to purchase a new one from the same or a different company. It’s all about misleading the client for personal gain.
Summary
Understanding what insurance twisting is and what consequences it can carry is important for anyone who wants to protect themselves from fraud. When consumers are educated and vigilant, they’re less likely to be victimized by unethical insurance agents.
Before you sign on the dotted line, remember to do your research, ask questions, and seek a second opinion from an independent advisor. The more you know about your policy and your rights, the less vulnerable you’ll be to insurance twisting and other kinds of scams.