“Churning” and “Vanishing Premiums” are two terms typically used to describe unethical practices by an insurance agent. Neither are industry condoned, and most insurance agents, if conducting such practices, would lose their license or be expelled from the company they work for.
“Churning” involves the practice of constantly replacing older policies with newer ones, typically which are to the detriment of the insured. Often this practice involves replacing older permanent policies with newer term or variable life policies. It is done to generate a commission for an agent and is considered unethical by most standards. Larger carriers often have internal controls and compliance officers to discourage this type of selling practice, but smaller carriers often do not. This is not to say larger carriers haven’t been involved in the practice, but as an industry issue, most larger carriers are loathe to replace older policies- often requiring substantial documentation by the agent to authorize replacement. Replacement of a life insurance policy may, in many cases, be perfectly suitable, but the buyer should look at all the policy fine print before signing. An independent professional insurance consultant can be of value in these matters.
“Vanishing Premiums” involve the practice of artificially generating a policy illustration with pumped numbers in order to make a policy more attractive to purchase by showing a premium ‘vanishing’ later in the policy years. Many whole life policies have dividend offset, where the dividends make the policy premium, in later years, but this term is often applied to ‘universal’ life policies where the agent has simply set the premium to zero in the illustration in later years. In this case the agent also puts the illustrated interest rate at very high numbers (typically 10-12%) and so the policy performs well, even with zero premium in later years. In reality, the policy does not perform at those levels and policy is subject to lapse, at a point in life when replacement of the policy may not be medically or financially viable. Of course, the unethical selling agent is now long gone and the insured is left holding the bag.
You should have your agent review your policy annually with you, or hire a private consultant to do so. A private consultant will be fee based on not on commission and so will not be motivated to give you anything but an honest appraisal of your insurance portfolio. These consultants typically charge about 50.00 to 100.00 for that service and the fee could be well worth it.
Good Luck!