Insurance twisting is fraud, and in most states it's a crime. When an insurer twists your policy, he convinces you to replace it with one from another company that's actually worse. Twisting hurts you financially, but it's a sweet deal for the agent who pulls it off. Churning is a similar scam in which the replacement policy is from the same company. The two terms are sometimes used interchangeably.
There's nothing wrong with your agent suggesting you change your current policy. In fact, if your current policy doesn't provide what you need, she might be violating professional ethics if she didn't suggest a change. What makes twisting unethical is that the agent lies, claiming the new policy she's pushing has financial advantages or other benefits that don't exist. This can happen with any type of insurance, but it's particularly common, and harmful, with life or health insurance: The older the twisting victim, the more it's going to cost him to buy a new policy.
Pros and Cons
Twisting has pros and cons -- but the pros are all on the agent's side. By selling a new policy, the agent gets a fresh commission. The more expensive the policy she talks you into buying, the better her take. You, on the other hand, get the cons: The policy may reduce coverage, or set restrictions that weren't in the original. If it's a life insurance policy, you may discover much of the cash value you've built up in your old policy disappears once you take out the replacement.
Replacing a policy may make sense if your financial situation has changed drastically. If nothing like that has happened, be cautious if your agent suggests a replacement -- particularly if she makes spectacular claims about the great deal she's getting you. Ask her for a written comparison and go over it carefully on your own time. A reliable comparison covers the premiums, the change in cash values, the benefits and the policy limitations. Some state statutes require the agent to give you this information.
If your state has anti-twisting laws on the books, report your agent to the state insurance commissioner. Your agent, if he's found guilty, may have to pay civil fines and criminal penalties, and he may lose his license as well. Anti-twisting laws don't usually provide grounds for a lawsuit, but you may be able to sue on other grounds. For example, if the agent told you lies about the policy, even if the paperwork stated the true fact, a successful lawsuit could win you damages and pay your attorney's fees.
- International Risk Management Institute: Twisting
- InvestmentFraud.Pro: Insurance Abuses -- Life Insurance Twisting
- Wall Street Instructors: Replacement, Twisting and Churning
- McMahon Law Group: Twisting
- As the Law Turns: http://www.asthelawturns.com/2012/04/insurance-agent-may-be-liable-for-oral-misrepresentation-of-insurance-coverage/
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