Life Insurance Fraud Through Twisting and Churning Explained

How Twisting and Churning Occur in Life Insurance

Twisting and churning both involve convincing a policyholder to replace an existing life insurance policy with a new one that offers little or no advantage. The distinction lies in where the new policy originates:

• Twisting occurs when a financial advisor persuades a client to replace their current policy with another policy from the same company, primarily to earn additional commissions.
• Churning involves switching to a different insurance company’s policy, again for the advisor’s benefit rather than the client’s.

These practices often rely on deceptive tactics, such as:

• Presenting false or misleading information about the supposed benefits of a new policy.
• Creating a sense of urgency to push clients into making hasty decisions.
• Concealing drawbacks like higher premiums, surrender fees, or reduced benefits.

In either case, the client is left worse off, while the advisor benefits from new, higher first-year commissions.

The Financial Incentives Behind These Scams

The motivation for twisting and churning is almost always profit. Financial advisors can earn commission rates exceeding 100% of the first year’s premium when a new policy is sold. This creates a clear conflict of interest when recommending policy changes. Advisors who convince clients to switch unnecessarily can reset their commission rate back to the lucrative first-year level, often at the expense of the client’s long-term financial well-being.

Some advisors misrepresent complex products, particularly permanent life insurance policies, to make them sound more beneficial than they are. These policies—such as whole life, universal life (UL), and variable universal life (VUL)—do appreciate in cash value, but accessing that value typically requires taking out a loan against the policy. If the loan is not repaid, it becomes a liability that reduces or even eliminates death benefits.

The Hidden Consequences for Policyholders

The financial harm from twisting and churning can be devastating, leading to:

• Higher premiums and new surrender fees.
• Reduced benefits or even total loss of coverage.
• Coverage gaps that leave families vulnerable during critical moments.
• Lingering debt from policy loans or financing costs.
• Unexpected tax liabilities triggered by policy changes.

A real-world example shows how damaging these schemes can be: an older couple, the Tremblays, lost at least $18.3 million after being persuaded by a broker to roll over existing annuities into new ones issued by Allianz Life Insurance Company. The broker falsely promised better rates and bonuses to offset fees, but the couple ended up owing $358,000 in taxes, borrowing $1 million to finance the policies, and immediately losing $50,000 due to ineligibility. Ultimately, their new policies had lower surrender values than their original ones, leading to severe long-term losses.

How to Protect Against Twisting and Churning

Life insurance is meant to provide stability and financial protection—not serve as a tool for an advisor’s personal gain. Policyholders can protect themselves by understanding the legitimate reasons for changing life insurance coverage and by recognizing when recommendations appear motivated by commissions rather than need.

Situations Where Policy Changes May Be Legitimate

There are limited, valid reasons to replace a life insurance policy, such as:

• Major life changes, including marriage, divorce, or the birth of a child.
• Significant shifts in financial circumstances, such as income loss or retirement.
• Changes in health or policy performance that genuinely warrant updated coverage.

If your advisor cannot clearly explain why a switch benefits you rather than them, it may signal misconduct.

Understanding the Role of Permanent and Term Policies

Financial advisors often promote permanent life insurance because it provides higher commissions, but it is not always the best fit. Key distinctions include:

• Term life insurance: Covers a specific period and typically offers lower premiums but no cash value.
• Permanent life insurance: Includes whole, universal, and variable universal policies that accumulate cash value but come with higher costs and greater risk of value erosion if loans go unpaid.

If you are being pressured to replace one of these policies without a clear justification or transparent side-by-side comparison, your financial advisor may not be acting in your best interest.

Help for Victims of Life Insurance Fraud

Victims of twisting and churning often face complex financial losses that can take years to uncover. If you believe your financial advisor encouraged you to replace or roll over your life insurance or annuity for their own benefit, you may have a claim for recovery through arbitration or legal action. Meyer Wilson Werning represents investors nationwide who have suffered losses from financial advisor misconduct and can help you understand your legal rights. Contact us today for a free consultation so we can start your path forward.

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