What practice involves using policy values from an existing life insurance policy to purchase another policy without reasonable basis for benefit?

Churning refers to the practice of using the cash values or benefits of an existing life insurance policy to purchase another policy, without a reasonable basis for doing so. This often occurs when an agent encourages a policyholder to cancel their current policy and replace it with a new one that may not provide any real benefit to the insured. The motivation for this action is frequently tied to generating additional commissions for the agent rather than serving the best interest of the policyholder. Churning can lead to significant disadvantages for the policyholder, such as loss of benefits, increased premiums, or extended waiting periods for coverage.

Recognizing churning is important because it highlights a breach of trust and ethical responsibility in the insurance industry. Agents have a duty to act in their clients' best interests, and when they engage in practices like churning, they undermine that trust and can cause financial harm to their clients. Understanding this concept helps ensure that individuals make informed decisions when purchasing life insurance and are wary of any suggestions that do not align with their long-term financial goals.