A producer convinces a client to surrender a perfectly suitable existing life policy by misrepresenting its cash value and promising that a new policy is identical but superior — acting solely to earn a new commission. This practice is known as:
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Why A is correct
Twisting is the practice of inducing a policyowner to lapse, surrender, exchange, or replace an existing policy through misrepresentation or misleading comparison, typically to generate a new commission for the producer. It is prohibited as an unfair method of competition, and California's replacement regulations (CIC Section 10509 et seq.) impose disclosure, notice, and record-keeping duties precisely to prevent harmful replacements. A genuine replacement is lawful only when the producer makes full, truthful disclosure — the client is not misled, the replacement notice is completed, and the new policy genuinely serves the client's needs. Here the misrepresentation makes it twisting.
Why the other options are wrong
- B) Rebating is giving a client part of a commission or another inducement to buy a policy. It is generally prohibited in California, so it cannot be a permitted commission-sharing technique.
- C) A Section 1035 exchange is a tax-free transfer of one life policy or annuity for another. It has nothing to do with misrepresenting policy features to induce a surrender or replacement.
- D) Filing a replacement notice does not cure misrepresentation. The transaction is twisting because the inducement rests on false statements about the existing policy, which the notice requirement cannot legitimize.
Memory hook
Twisting = lying to swap policies for a fresh commission. Honest replacement is fine; false inducement is fraud.