What is Twisting in Insurance
What Is Twisting Insurance?
What is Twisting in Insurance?
Twisting insurance is when an insurance agent attempts to induce a policy owner to drop an existing life insurance policy and take another policy that is substantially the same kind by using misrepresentations or incomplete comparisons of the advantages and disadvantages of the two policies.
What Is Twisting Insurance? With a twisting, the agent typically makes it seem like he’s doing his client a favour by suggesting there might be higher rates with the company’s competitor or other unfair advantages or disadvantages of their current plan with their current provider.
In reality, it’s illegal for an agent to twist, and any agent found twisting will be held liable in most states.
What is Twisting in Insurance?
It is important to understand that, at least in terms of policies taken out after 1990, twisting does not necessarily mean fraud.
Rather, it means to twist something around in an effort to induce another person to do something – usually drop their existing policy and take a new one.
But why would someone want another life insurance policy?
What Is Twisting Insurance? To be sure, there are legitimate reasons. But what is twisting insurance is when you twist those facts in an attempt to convince someone they are getting a better deal than they really are.
How does it work?
What Is Twisting Insurance? The ‘A Word’ on mis-spelling:
The practice of twisting has been defined as the act of attempting to induce a policy owner to drop an existing life insurance policy.
And to take another policy that is substantially similar kind by using misrepresentations or incomplete comparisons of the advantages and disadvantages of the two policies.
An agent who twists his sales pitch might, for example, show you how another company’s plan would cost $10 more per month but fail to tell you that it would provide only 10% more death benefit.
If you were buying life insurance solely on a comparison of premiums and weren’t knowledgeable about benefits such as length-of-term guarantees, surrender charges or loan values or coverage limits, that information could be significant.
What are some examples?
The following are some examples of what life insurance agents may say to induce a policy owner to take another policy that is substantially similar to their existing one:
You can double your coverage, and do it for half price; This is what your wife would want you to do, or Your current coverage just isn’t adequate in today’s environment. But none of these statements, by themselves, mean anything.
To truly compare policies and benefits, you have to weigh all available factors including premium cost, death benefit amount and cash values.
If an agent twists too many comparisons or makes certain assumptions about your needs without asking for information from you first, it could be considered fraud.
What Is Twisting Insurance? Prevention Tips
You may not even realize you’re being twisted. Here are a few signs: You’re told you should switch policies if you want to increase your death benefit, increase or decrease cost-of-insurance or protect yourself against inflation.
These suggestions may be true, but only if a new policy is substantially different from your current one in these respects. If it’s a new version of an existing product, there could be nothing gained by switching—and plenty lost.
What are the Penalties?
There are two types of penalties that insurers are able to levy in a twisting case.
The first is called constructive fraud, which comes into play when it can be proven that a policy owner was intentionally misled by an insurance agent.
The second is punitive damages, which are designed to punish insurers who have engaged in malicious acts against policy owners.
Punitive damages may come into play if it can be proven that an insurer knew about possible twisting but did nothing to prevent it from happening anyway.
Punitive damages serve as both a financial penalty for wrongdoing and as a deterrent against further misconduct from other insurance companies or agents.
Is Twisting In Insurance Illegal?
No, it is not illegal. Insurance agents cannot force you to change insurance companies or policies, but they can make it clear that other policies are available with similar or better terms than what you have now.
If an agent does not give you all of your options and discuss each policy’s advantages and disadvantages to help you make an informed decision, he may be acting unethically.
You have a right to choose which insurance company will best meet your needs without feeling pressured into switching because of inaccurate information provided by a salesperson.
Twisting Vs. Churning Insurance
One of my favourite books on insurance is The Secrets of Power Insurance Sales by Dr Bob Hoffman and Jim Maguire.
In it, they define twisting as the act of attempting to induce a policy owner to drop an existing life insurance policy.
And to take another policy that is substantially the same kind by using misrepresentations or incomplete comparisons of the advantages and disadvantages of two policies.
This usually means telling someone, who already has some type of life insurance coverage, that their current plan is obsolete and needs replacing with a new one because their current insurer is getting out of that line of business or making major changes in coverage.
This can sometimes be true; however, more often than not, there are very few differences between plans being offered.
What Is Twisting Insurance? Characteristics Of Twisting
The insurance business is designed to generate profit through cross-selling—sales that happen when a customer already has an existing product with a particular company.
Cross-selling happens in many areas of commerce, but it can be especially lucrative in insurance because of prior acts, or sales of existing policies.
In these situations, companies are incentivized to convince customers that they can get a better deal by dropping their existing policy and taking another one with them.
At times they might even misrepresent what is required to do so. This can lead to twisting insurance—attempting to induce an individual to drop their existing life insurance policy and take another policy that is substantially similar kind by using misrepresentations or incomplete comparisons of the advantages and disadvantages of each plan.
Conclusion – Twisting Insurance
So what is twisting insurance? It’s making a policy owner think they’re getting a great deal when in reality they are being switched to a product that is nearly identical.
This can lead to them not comparing prices between policies and risking their financial future by having several policies or no policy at all.
What Is Twisting Insurance? This is why it’s important to know what you have before thinking about upgrading your coverage.
As for me, I’m going to do everything in my power to make sure I keep what I have and avoid any unwanted twists from happening on my policy.
If you have any questions, leave them below! Have a wonderful day!