What is twisting in insurance? Everything you need to know
Introduction. What is twisting in insurance?
In short, twisting is the act of inducing or attempting to induce a policy owner to drop an existing life insurance policy.
This act is intended to entice the insured to take out another policy that is substantially the same by using misrepresentations or incomplete comparisons of the advantages and disadvantages of the two policies.
Insurance policies such as life insurance policies are dynamic and constantly changing to include benefits and more options to make them versatile for policyholders.
Therefore, you shouldn’t be surprised if your life insurance company contacts you to inform you about specific products best suited to your needs.
However, the act of twisting in insurance is an entirely different matter altogether. We will discuss what those key differences are in this article.
The key topics that we are going to cover are:
- What is twisting in insurance?
- Why will insurance agents do that?
- Do insurance companies encourage their agents to use this practice?
- How can you be protected from twisting?
- Common life insurance scams.
- Twisting and churning - what is the difference?
- Twisting and misrepresentation - what is the difference?
- An example of twisting in life insurance.
- How to Prevent Life Insurance Scams.
- Contact the insurance agency.
- Read the small print.
- Get a second opinion.
- Safeguard your information.
- If you’re a victim of fraud.
- Advantages of life insurance.
- Disadvantages of life insurance.
- How much life insurance do I need?
- Life insurance cost.
- Life insurance quote.
What is twisting in insurance? Continued
Twisting is a severe issue in insurance. Twisting occurs if an agent tries to convince the insured to replace his or her existing life insurance policy, with variations as to why that is.
If an insurance agent tries to sell a new yet similar policy to a policyholder with little to no benefit for the insured, this is known as twisting in insurance.
For this act to qualify as twisting, the agent must use intentionally misleading or false information to get the person to switch plans.
In short, twisting typically occurs when it’s not in the client’s best interest to purchase a new policy. The term “twisting” implies that the agent had to “twist the truth” to deceive the client into considering a new policy.
This deception is widespread with life and health insurance policies, but it can happen with any insurance type.
The genuine replacement of existing insurance coverage is common practice, however, persuading policyholders to make unnecessary changes based on misleading information is unethical. Twisting is illegal in most countries.
Even where twisting is not yet illegal, this unethical practice could be prosecuted under general fraud statutes.
To summarize, twisting is usually the act of replacing the insurance coverage of one insurer with another based on falsifications and misrepresentations.
Twisting is financially hard on the client, but it works in favor of the agent who tricks the insured. Let’s consider why insurance agents do this.
Why will insurance agents do that?
The reason why insurance agents commit to twisting is due to their financial gain.
Only life-insurance agents have the financial motivation to use twisting, i.e., agents who sell life insurance, term insurance, whole-life insurance, unit-linked insurance, investment insurance, and saving insurance.
Life insurance policies pay incredibly high commissions for the first year, i.e., 20% - 45% on the premiums. But in the second year, this commission percentage reduces to 3% - 6%, the third year to 1% - 3%, and the fourth year to 0% - 1%.
Therefore, these insurance agents who engage in twisting will tend to do so because they get a commission for selling a life insurance policy. They are motivated to sell new contracts to receive a high first-year commission.
These insurance agents use fraudulent techniques to convince existing clients to buy updated versions of contracts they already have, since finding new clients can be extremely difficult.
In other words, the more expensive the policy they convince customers to buy, the higher the commission they receive.
Twisting is misleading and dangerous. Ending a life insurance policy prematurely can waste the policyholder’s time and eventually cause them unnecessary stress. It also wastes their money in more ways than one since holding a policy can grow its value.
Of course, replacing a policy may make sense in situations when it is needed. For example, when there is a drastic change in the client’s family or financial situation.
But when it comes to twisting and the agent pushing the changes, it’s nonsensical and unethical.
Do insurance companies encourage their agents to use this practice?
When considering why insurance agents use twisting techniques, it’s also important to consider whether insurance companies encourage their agents to use this practice.
The answer here is not straightforward.
Insurance companies provide their agents with financial motivations to close insurance deals that the clients want. This technique is standard practice.
Typically, if an insurance contract is canceled for whatever reason within 2 years, the agent is either penalized or does not receive a commission called the “persistency bonus.”
Nevertheless, there is not any penalty for contracts canceled after 2 years.
Insurance companies usually know which agents use twisting but rarely do they take action to end their cooperation with them.
Here are some of the common characteristics of twisting in life insurance:
- The agents do not provide straightforward answers.
- There is insufficient supporting documentation of the new policy’s benefits.
- They “can’t” provide you with additional information about the change in policy.
- The agent seems forceful when trying to sell you a new policy.
- The proposed offer looks too good to be true, with no factual evidence to prove it.
As a customer, identifying the signs of twisting that an insurance agent may use can be vital to protect yourself from being misled.
How can you be protected from twisting?
Knowing what twisting is and having knowledge about the act is the first step to avoiding falling for these sales techniques.
Aside from this, how can you be protected from twisting?
We suggest you always ask to read the old and the new policy proposed by your agent to compare the two side by side.
You are well within your rights to ask as many questions as necessary and should never feel forced to make a decision.
You can also ask your agent about the benefit of ending an existing contract.
As a rule of thumb, never cancel contracts that were made for the long-term (especially unit-linked contracts) for new contracts.
Make no mistake, twisting is essentially a common fraudulent activity. This is a form of coercion committed by an agent working on commission as an incentive to sell you a higher-priced policy.
Next, we cover why twisting is so common in fraudulent life insurance scams and list other scams you should watch out for.
Common life insurance scams
In addition to twisting in insurance, some of the most common life insurance scams are listed below:
- Overselling a policy.
- Identity theft scams.
- Insurance agent fraud.
As you can see here, the common life insurance scams share similarities. Moreover, twisting can fall into the category of “overselling” and “insurance agent fraud.”
To discuss this topic, let’s examine the differences between some of these scams.
Twisting and churning - what is the difference?
There is a fine line that separates twisting from churning in insurance. This difference is determined by who is benefitting from the act.
Churning typically occurs when an insurance agent tries to convince policyholders to give up existing policies in favor of a new policy from the same insurer.
Using false statements to do so does not benefit the insurance company, but it is a sweet deal for agents. It is an unethical tactic that agents use to increase their commissions.
Twisting in insurance is nearly identical. However, twisting in insurance involves doing the above to persuade a client to give up a policy from a different insurance company.
In this case, the agent and the insurance company both benefit by luring clients away from their competitors.
Twisting and misrepresentation - what is the difference?
There are a few key differences that distinguish twisting and misrepresentation.
Twisting is intentional and typically changes the meaning of the original statement, whereas misrepresentation is not always malicious but results in a change of context.
The insurance agent and the insured can both cause misrepresentation.
If clients provide false information on their coverage applications, this can be seen as a misrepresentation. That can take on many forms.
However, twisting of facts can also occur when an insurance agent provides misrepresentations of statements to work in their favor.
An example of twisting in life insurance
The insurance industry has many regulations in place as codes of practice. While some regions have made insurance twisting illegal, many others haven’t.
However, as mentioned earlier, if insurance agents are found to have violated any existing codes of practice, they can be penalized. In severe cases of fraud, they may lose their license.
What might an example of twisting your life insurance policy look like? We’ll cover a scenario involving twisting in life insurance.
Let’s say you currently have a whole life insurance policy, but you’ve realized the premiums have grown too high for your current financial budget.
It’s worth noting here that your whole life policy has accrued cash value.
Now, to reconsider your options, you’ve contacted an agent for help.
You let them know you’d like to select a cheaper policy within your budget that still protects you and your family.
The insurance agent then convinces you to cancel your whole life policy and purchase a term life policy.
The agent promises you that this new policy will help you save money on premiums. And it seems innocent enough because it will save you money which was your end goal.
What you’ve overlooked is, you’ll either have to give up the cash value of your old policy or end up paying taxes on it.
Or in other words, what they don’t tell you is, the taxes could wipe out any premium savings you had.
To summarise the above, trustworthy and reputable agents will explain the pros and cons to you, whereas agents who use twisting tactics will not.
Reputable agents will be unbiased and go into detail about every change you consider making, including any tax implications. These agents won’t leave out details to make a sale.
Hopefully, this scenario has highlighted more about the topic: what is twisting in insurance? And we hope you haven’t found that out the hard way.
Fortunately, many insurance agents want the best for their clients, and their services will reflect that.
Furthermore, with current regulations and codes of practice in place, you shouldn’t have to worry too much about insurance twisting.
Nevertheless, it would help to protect yourself by working with credible agencies. It’s always worth your time to find out ways to prevent life insurance scams.
How to Prevent Life Insurance Scams
If you think you have been sold a policy with twisting tactics, you can file a complaint and open an investigation with the insurance company.
With any luck, you won’t need to do that. It’s possible to prevent falling victim to life insurance scams altogether.
Knowing the common scams that insurance agents may pull is key to avoiding becoming a victim. And aside from this, how can you be protected from life insurance scams and twisting?
Specifically, in the case of twisting, we have summarised the above section:
How can you be protected from twisting?
- Ask to read the old and the new policy suggested by your agent.
- Ask questions and never rush a decision that is being enforced.
- Find out what the benefit of ending an existing contract and starting a new one is.
In addition to the advice mentioned above, here are some vital tips to simultaneously prevent twisting and other common life insurance scams.
Contact the insurance agency
If you’re working directly with an agent, contact the agent’s insurance company. A reputable agency should be able to verify your agent’s reputation and answer any questions you have.
Read the small print
As tedious as it can seem, before signing anything, read the documentation carefully. Question any terms you don’t understand and settle issues before agreeing to the policy.
Get a second opinion
If your agent starts upselling or “twisting the truth,” you might need a second opinion. You can contact another life insurance agent or agency to flag unethical behavior.
Safeguard your information
If you receive third-party communications about your policy, contact your life insurance agency or agents to discuss it. Do not give out any information unless you’re absolutely sure you’re speaking to a representative from a service you use.
If you’re a victim of fraud
Taking action is essential if you realize you’ve been scammed. You’ll need to seek legal assistance, and you may also require help from an insurance fraud bureau to file a report and potentially stop the agent from scamming anyone else.
Advantages of life insurance
Without a doubt, one of the most important financial planning tools for individuals and families is life insurance.
It’s better to have the peace of mind that life insurance offers than to realize the importance of it during an emergency. We all know by now, life can be quite unpredictable.
While you can’t always predict what the future may bring, you can be prepared to deal with any challenges that come your way.
That’s where life insurance can help. One of the many advantages of having life insurance is it ensures your loved ones are financially protected in the face of adversity. That way, certain uncertainties of life are taken care of.
In a snapshot, here are some of the main advantages of life insurance:
- Your family is taken care of financially in the event of your death.
- It offers protection against financial loss in the event of the death.
- Your death benefit can be used to pay off your family’s debt and maintain their current lifestyle.
- You can obtain a guaranteed amount of money as the plan matures.
- You can take advantage of a tax deduction for the cost of the policy.
- It can be used to meet various long-term goals, like building a retirement corpus.
- You can invest in life insurance to accumulate savings to live a stress-free life after retirement.
For an unbiased take on life insurance, we will consider the disadvantages of life insurance.
Disadvantages of life insurance
Life insurance is essentially a financial safety blanket you can use to protect your family against financial hardships. But like any other type of insurance, life insurance comes with its disadvantages.
Here are some of its disadvantages:
- Older population: life Insurance gets more expensive as you age.
- Life insurance is based on your details: chronic illness is also seen as a higher risk.
- The returns on life insurance are not as significant as investment tools.
- Depending on the insurer, pay-out denials or changes can occur.
- Some insurance policies are complex and confusing to understand.
- There may be hidden terms and exclusions in life insurance policy.
- Unethical agents and companies may cause fraudulent activity and scams.
How much life insurance do I need
Providing financial security for loved ones and offering peace of mind for the insured is one of the prevalent factors for people buying life insurance.
Before deciding on an insurance policy plan, you should estimate how much insurance you may need if you want to leave behind an inheritance or replace a source of income.
You should factor in your current benefits, pensions, and other investments. Assets should also be taken into consideration while also accounting for your beneficiaries’ estimated expenses for the future.
You can consider the everyday costs, such as food and utilities, rent or bills, to larger financial figures, such as mortgages and loans, or tuition fees and education money.
As an added financial cushion for your loved ones, you could also consider funeral costs and other end-of-life expenses.
As a general rule, you should buy a policy with a face value, that is, per average, 13 times your income, and has some cushion for unexpected costs. For example, if your annual income is 100,000 dollars, then you can buy life insurance for 1,300,000 dollars. The annual income includes salary, bonuses, pension, dividends, profits from selling financial assets, etc.
Twisting is a serious issue affecting the life insurance industry and, essentially, the life insurance costs for the insured.
But as we’ve highlighted in this article, you shouldn’t worry too much about it if you’re with a trusted insurer.
The reality is that the vast majority of agents want to help their clients and provide an ethical service for their needs and financial status.
Life insurance cost
Reputable insurers like ours will give you an unbiased view of the wide range of factors that will affect the cost of a life insurance policy.
These factors, listed below, include your age and gender, your current medical history, the state of your health, and the type and amount of coverage you want.
To obtain life insurance, you will need to provide the following information:
- The required insured amount.
- Personal details: age, gender (typically, men’s premiums are higher).
- Medical history (including pre-existing conditions, previous medical operations, and whether the applicant is taking medication at the moment of the application).
The failure to have comprehensive life insurance can cause unnecessary financial suffering to those left behind.
Pitsas Insurances offer competitive life insurance packages for those wanting to protect their family or loved ones in the event of death.
Life insurance quote
With 35 years of experience and counting, you can protect yourself against fraud by working with Pitsas Insurances.
We offer competitive premiums and uncomplicated policies which cover basic needs.
We will always guide you to the optimal decisions and beneficial options according to your specific needs and budget constraints.
Our clients are frequently informed with clarity and transparency about updates and changes. Offering high quality service is our standard.
Why choose life insurance with Pitsas Insurances:
- Considerable financial income for your family members.
- Coverage of expenses for your children’s education fees.
- Immediate mortgage payment coverage.
- Beneficial tax benefits and deductions.
- Save up to 25% and connect the policy with your medical insurance.
Contact Pitsas Insurance to get a hassle-free quote today.
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