What unethical practice occurs when an agent encourages a policyowner to replace an existing life insurance policy to generate a new commission?

The scenario described involves an agent encouraging a policyowner to replace an existing life insurance policy primarily for the purpose of generating a new commission. This practice is known as churning. Churning occurs when an agent persuades a client to surrender or replace a policy in order to earn higher commissions on the new policy, often without sufficient benefit to the client. It can lead to the client incurring unnecessary costs, loss of benefits, or decreased coverage.

In contrast, twisting refers to the practice of misrepresenting or omitting information about an insurance policy to persuade a policyholder to switch to a different insurer, which can be closely related to churning but focuses more on misrepresentation rather than the mere act of replacing a policy for commission purposes.

Rebating involves offering something of value to a prospective policyholder to induce them to purchase a policy, which is generally illegal in many jurisdictions, including California, but is different from the unethical inducement seen in churning.

Coercion would entail using threats or undue pressure to force someone into a decision, which is not exactly what is taking place since the agent is encouraging replacement for profit rather than through force or fear.

Understanding these terms helps clarify the ethical boundaries within the insurance industry and why churning is