Within the insurance coverage business, a particular unethical observe entails inducing a policyholder to cancel an current insurance coverage coverage and buy a brand new one, typically to the detriment of the policyholder. This motion usually happens when an agent misrepresents the phrases of the present coverage or the brand new coverage, or each, to be able to safe a fee from the sale of the brand new coverage. For instance, an agent may persuade a consumer to switch a complete life insurance coverage coverage with a time period life coverage by exaggerating the price of the entire life coverage and downplaying the long-term advantages it supplies.
This exercise is taken into account dangerous because of its potential for monetary loss to the policyholder. The policyholder could incur give up expenses on the canceled coverage and should not understand the complete worth of the brand new coverage. Moreover, the policyholder could lose advantages related to the unique coverage, resembling assured rates of interest or protection for pre-existing circumstances. Traditionally, laws have been put in place to forestall this observe and shield customers from unscrupulous brokers. The main target is on making certain that coverage replacements are actually in one of the best curiosity of the consumer, not solely for the agent’s monetary achieve.
