In Pennsylvania, what does 'replacement' mean in connection with the sale of a life insurance policy?
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Answer & full 3-part explanation (select an option above, or peek)
Why C is correct
Replacement is defined by 40 P.S. § 625 and the operational rules in 31 Pa. Code Ch. 81 as a transaction in which new life insurance is purchased and, as a result, an existing policy lapses, is surrendered, is converted to reduced paid-up or extended term, or is otherwise substantially changed or discontinued. The significance is procedural: once a transaction is a replacement, the producer and insurer must follow Pennsylvania's replacement procedures, including notice and comparison duties enforced by the Pennsylvania Insurance Department, so the applicant can judge whether the switch truly serves the applicant's interest.
Why the other options are wrong
- A) Adding a rider keeps the existing policy in force unchanged; there is no lapse, surrender, or discontinuance of the original coverage.
- B) An employer-directed group exchange is a group-plan action, not the individual policy replacement that Pennsylvania's replacement rules define and regulate.
- D) Reinstatement restores the very policy that lapsed; replacement involves buying new coverage while the old coverage goes away.
Memory hook
New policy in, old policy out: that swap is a replacement in Pennsylvania.