State RegulationsIL specificDifficulty 2/5
An Illinois applicant plans to buy a new policy and pay its premiums by borrowing against the cash value of his current policy, issued by a different insurer. Under 50 Ill. Adm. Code 917, how is this treated?
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Answer & full 3-part explanation (select an option above, or peek)
Why C is correct
50 Ill. Adm. Code 917 defines replacement to include borrowing from the existing policy's cash value to fund the purchase of the new contract. The rule looks past form to substance: even though the old policy technically stays in force, the owner has diverted its accumulated value into the new transaction, which is exactly the erosion of in-force protection the notice and comparison procedures are designed to illuminate.
Why the other options are wrong
- A) Technical survival of the old policy does not avoid the rule; diversion of its values is enough.
- B) The policy's internal loan provision governs the mechanics of borrowing, but the replacement regulation independently governs the sales transaction.
- D) The definition contains no delivery-condition trigger; the funding method itself brings the transaction within the rule.
Memory hook
Borrow the old to buy the new, and you have replaced even if the old survives.