State RegulationsMI specificDifficulty 2/5
Which of the following life insurance transactions is exempt from Michigan's replacement rules?
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Answer & full 3-part explanation (select an option above, or peek)
Why A is correct
Michigan's replacement framework exempts transactions with the same insurer or an affiliate of the existing insurer, as recognized under Michigan Administrative Code R 500.603 and DIFS Bulletin 84-06. An internal exchange with the same insurer does not present the inter-company replacement abuses the rules target, so the full notice and disclosure apparatus is not triggered. Cross-company transactions, by contrast, are the core situations the rules were written to police, because the applicant's existing coverage is what pays for the new sale.
Why the other options are wrong
- B) Replacing coverage across competing insurers is the central transaction the replacement rules cover.
- C) Surrendering one insurer's policy to buy another insurer's annuity is a replacement, since existing coverage is used to fund the new purchase.
- D) An exchange with a competing insurer that reduces cash value is a replacement regardless of the benefit reduction.
Memory hook
Same insurer or affiliate means internal, and internal means exempt.