Under CIC §10509, the replacement rules for life insurance and annuities exist primarily to:
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Answer & full 3-part explanation (select an option above, or peek)
Why A is correct
CIC §10509 states the purpose of the replacement article: to regulate insurer and agent activities in replacement transactions, to protect the interests of life insurance and annuity purchasers by assuring they receive information with which a decision can be made in their own best interest, to reduce the opportunity for misrepresentation and incomplete disclosures, and to establish penalties for failure to comply. Replacement itself is not prohibited; it is regulated so the consumer can fairly compare the existing and proposed policies and understand what is being given up, such as surrender charges or incontestability protection.
Why the other options are wrong
- B) Replacement is lawful and common; the rules regulate the transaction rather than banning it, since many legitimate reasons exist for changing coverage. A prohibition would eliminate a consumer's ability to improve or update protection.
- C) The existing insurer does not approve the replacement; the replacing insurer and its agent must meet disclosure and recordkeeping duties. Approval of the old carrier is not part of the statutory scheme.
- D) No rule guarantees lower premiums, and a poorly designed replacement can actually cost the consumer more while reducing benefits. The replacement rules require full disclosure of costs, benefits, and surrender details so the consumer can make an informed comparison. They protect information, not premium outcomes.
Memory hook
Replacement rules = an information shield for buyers, not a ban on switching policies.