What does churning refer to in the context of life insurance?

Churning, in the context of life insurance, specifically refers to the practice of replacing an existing policy with a new one in order to generate repeated commissions for the agent. This often involves convincing the policyholder to surrender their current policy and purchase a new one, which can lead to disadvantages for the client, such as loss of coverage or increased costs. Churning primarily benefits the agent, who receives commissions on both the new policy and the cancellation of the old one, rather than focusing on the best interests of the client and their long-term financial needs.

The other options, while related to insurance practices, do not correctly describe churning. Switching insurers frequently does not inherently involve replacing policies for the purpose of earning commissions; it could be a legitimate decision based on various factors. Offering rebates to clients can raise ethical concerns and may violate certain regulations, but it does not align with the definition of churning. Providing misleading information about new policies is a different unethical practice that does not specifically denote the replacement of policies to generate commissions. Thus, the focus of churning is solely on the inappropriate replacement of policies for the benefit of the agent rather than the client.