New Jersey Life Producer Practice Exam

What term describes the illegal act of inducing an individual to lapse their current life insurance policy?

1. Churning

2. Twisting

3. Fraud

4. Misrepresentation

The correct answer is: Twisting

The correct term that describes the illegal act of inducing an individual to lapse their current life insurance policy is "twisting." This practice occurs when an agent persuades a client to drop their existing insurance policy to purchase a new one that may not be in the client's best interest, often misrepresenting the benefits or provisions involved. Twisting is particularly unethical because it typically leads to a loss of coverage for the client without providing a tangible benefit, and it often involves misleading or fraudulent statements regarding the advantages of the new policy. Regulations are in place to protect consumers from such tactics, making them legally actionable against the agent or company involved. Understanding this term is crucial for anyone preparing for the New Jersey Life Producer licensing exam, as it highlights the importance of ethical practices in the insurance industry and the potential consequences of endorsing deceptive sales tactics.