Structure of a Misleading Sales Pitch.

There was a rash of policyholder complaints regarding misleading sales practices. This has caused a growing number of class action suits against life insurance companies. The offending practices usually churn or twist their promises of “vanishing premiums”.

When a policyholder has been paying into a whole life insurance policy for a certain period of time, its cash value increases, which makes the policy a lot more valuable. 

There are some deceitful life insurance agents who urge their customers to purchase a “new and improved policy” with their built-up cash. They say that this “new and improved” policy will have different payment schedule, different features, and more coverage.

 Life insurance agents offer their customers a new policy with their build-up of cash, but what people don’t know is that the policy that they currently own might be even better than the one that they are offering.

While signing up for a new policy, you will go back to square one with your built-up cash value which will then be nothing. Basically, they want to trick you into buying a “better” policy so you could lose your build-up of cash. This practice, known as “churning” or “twisting”, is illegal and unethical, although, it is done.

However, the customer doesn’t have to agree to this. As a matter of fact, the fallout from “twisting” isn’t immediately apparent. A customer doesn’t have to give away any money up front because the build-up of cash of the existing policy pays the preliminary premiums of the new one. When you do decide to use your cash value – it’s spent.

Jose Montemayor, a Texas insurance commissioner, says that “churning or twisting” profits insurance agents at your expense. They make money while you lose it. One of the major factors on purchasing an insurance policy is age.

Montemayor proclaims, “If you bought the original policy at an earlier age, the new policy might cost more and offer less coverage. In addition, if you should die during the first two years of a new policy, the insurance company can contest claims for the death benefits. Many companies pay larger commissions to agents for new policies than for renewals.”

Did you ever wonder how life insurance companies make their profit? They take the money they collect in premiums and invest it. In the case of permanent life insurance policies, companies then put some of those investment earnings back to the value of your policy.