What Does Twisting Mean in Insurance?

Twisting is an unethical and illegal practice within the insurance industry that can significantly harm consumers. This deceptive maneuver involves an agent inducing a policyholder to surrender an existing insurance policy, often a life insurance policy or annuity, and purchase a new one. The core issue is that the replacement policy typically offers no true benefit to the policyholder, or is even detrimental, while primarily serving to generate a new commission for the agent. This article will define twisting and explain its implications for consumers.

What Twisting Means

Twisting occurs when an insurance agent persuades a policyholder to replace an existing insurance policy with a new one, either from the same insurer or a different one. This replacement is based on misrepresentations or an incomplete comparison of policies, and it is not in the policyholder’s financial interest. The new policy often provides similar or inferior benefits, making the switch unnecessary and potentially costly for the insured.

This practice is considered a form of insurance fraud, as it deprives consumers of the opportunity to make informed decisions. Agents engaging in twisting prioritize financial gain over the client’s best interests. While legitimate policy replacements can occur when they genuinely benefit the policyholder, twisting involves deceitful tactics that exploit the trust between the insured and the insurance professional.

How Twisting Occurs

Twisting typically involves an agent using deceptive tactics to convince a policyholder that a new policy is more advantageous. Agents might misrepresent the terms, benefits, or features of the existing policy, downplaying its value or exaggerating its costs. They may also misrepresent the proposed new policy, suggesting it offers “free” benefits or is a “better deal” without disclosing its true costs or disadvantages.

A common method involves incomplete comparisons. An agent might fail to disclose surrender charges on the old policy, new waiting periods, or higher premiums. They might also omit information about the loss of accumulated cash value or dividends from the original policy. These omissions and misrepresentations mislead the policyholder into believing the replacement is beneficial when it is not.

Why Twisting is Prohibited

Twisting is prohibited because it causes significant financial harm to the policyholder. Policyholders may incur substantial surrender charges for early termination of their original policy, which can range from a few percentage points to over 10% of the policy’s cash value, especially in the early years. They might also face higher premiums for the new policy, particularly if they are older or their health has changed since the original policy was issued.

Policyholders can also lose accumulated cash value or other benefits, such as favorable guaranteed interest rates, from their old policy. The new policy may impose new waiting periods or contestability periods, which could delay or deny claims during these initial periods, typically one to two years. Twisting can lead to reduced coverage, increased costs, and a net financial loss over time for the insured.

Addressing Twisting

State insurance departments and regulatory bodies play an important role in addressing twisting. The National Association of Insurance Commissioners (NAIC) has developed model regulations, such as the Life Insurance and Annuities Replacement Model Regulation, which many states adopt. These regulations aim to ensure consumers receive adequate information to make decisions in their best interest and reduce opportunities for misrepresentation.

Policyholders who suspect they have been victims of twisting should contact their state’s Department of Insurance. These departments investigate complaints and can take action against agents and insurers. Penalties for agents involved in twisting can be severe, ranging from civil fines to the suspension or revocation of their insurance license. In egregious cases, agents may even face criminal penalties.