Under the Michigan Administrative Code's replacement rules, which of the following transactions involving an existing life policy counts as a replacement?

Why B is correct

Michigan Administrative Code R 500.601(c) defines replacement to include a lapse, surrender, conversion to reduced paid-up or extended term, a reduction in nonforfeiture value, reissuance with a reduced cash value, or pledging or borrowing an amount exceeding 25% of the policy's loan value. A substantial policy loan or collateral pledge materially diminishes the existing contract, so it triggers the producer's and insurer's replacement duties under the Michigan Insurance Code framework.

Why the other options are wrong

• A) A premium paid within the grace period under M.C.L. 500.4012 keeps the existing policy in force and does not reduce its value, so it is not a replacement.
• C) Changing a beneficiary merely redirects the death benefit and leaves the policy's values untouched, so it is not a replacement.
• D) Buying paid-up additions with dividends increases coverage and does not lapse, surrender, or reduce the existing policy, so it is not a replacement.

Memory hook

Borrow more than 25% of loan value = replacement.