What Does Twisting Mean?
Twisting occurs when an insurance agent convinces a life insurance policyholder to replace his or her existing life insurance policy by selling a new similar policy from the agent. In order for the act to qualify as twisting, the agent must use misleading or false information to get the person to switch.
Typically replacing the policy is not in the client's best interest. The agent needs to “twist the truth” or deceive the client into purchasing the new policy. This can happen with any type of insurance, but it's particularly common, and harmful, with life insurance or health insurance policies.
While the replacement of existing coverage is common practice, persuading changes in coverage based on misrepresentation or misleading information is unethical and also illegal in most of the United States. Even in states where twisting is not yet illegal this practice could be prosecuted under general fraud statutes.
Insuranceopedia Explains Twisting
In simple terms, twisting is the act of replacing insurance coverage of one insurer with that of another based on misrepresentations (coverage with Carrier A is replaced with coverage from Carrier B). Twisting hurts clients financially, but it's a sweet deal for the agent who pulls it off. Insurance agents who engage in twisting usually do so because they get paid a commission for the sale of a life insurance policy. The more expensive the policy they talk a person into buying, the better the commission they receive.
Not only is twisting misleading, but ending a life insurance policy prematurely can waste the policyholder's time and money, since holding the policy for a long time can grow its value. Replacing a policy may make sense in situations where there is a drastic change to the clients family or financial situation.
In states with anti-twisting laws, penalties for agents found guilty range from civil fines to criminal penalties and can include the agent losing his insurance license.