State RegulationsVA specificDifficulty 3/5
A producer exaggerates the weaknesses of a client's existing life policy and falsely claims it is about to lapse, in order to persuade the client to surrender it and buy a new policy that generates a fresh commission. Under Virginia unfair-trade-practices law, what is this conduct called, and is it permitted?
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Answer & full 3-part explanation (select an option above, or peek)
Why D is correct
Va. Code § 38.2-503 prohibits misrepresentation not only of a new policy's terms but also any misrepresentation made to induce the lapse, forfeiture, exchange, or surrender of another policy — the practice known as twisting. The Virginia Bureau of Insurance treats twisting as a serious unfair trade practice because it converts the client's existing coverage into a commission at the client's expense. Written consent or a competitor's involvement is no defense.
Why the other options are wrong
- A) Rebating is giving something of value as an inducement; the conduct described is inducing surrender by misrepresentation, which is twisting and is prohibited.
- B) Defamation targets false statements about a competitor; the misconduct here is misrepresentation to the client about the client's own policy.
- C) Unfair discrimination concerns differential treatment of similarly situated risks; the client's consent does not legalize induced surrender by misrepresentation.
Memory hook
Twisting scares a client out of the old policy — misrepresentation by another name.